Xi, Trump De-Escalate China Tensions, Cut Tariffs, Pause Restrictions. Now What?

U.S. President Donald Trump greets Chinese President Xi Jinping meet on Thursday in South Korea. (Andrew Harnik / Getty Images)

Key Points

• The U.S. and China agreed to a truce, but many issues remain unresolved.
• China committed to purchasing 12 million metric tons of soybeans through January, and at least 25 million metric tons annually for three years.
• Both nations suspended recent measures, including changes to the U.S. Affiliate Rule and some Chinese rare-earth controls, for one year.

The U.S. and China have paused their game of geopolitical chicken, achieving a truce but making little progress in addressing the sources of friction in their intensifying rivalry.

The first meeting in six years between President Donald Trump and Chinese leader Xi Jinping brought a round of concessions. Both sides agreed to delay restrictions that formed the center of an escalating tit-for-tat in recent weeks.

That de-escalation, which appeared to be more a win for China than for the U.S., took a worst-case scenario off the table for markets, though much of what was agreed upon still has to be worked out in detail. The list of unresolved issues is still long.

Still, there is concrete progress. Beijing agreed to resume soybean purchases—12 million metric tons through January and then a minimum 25 million metric tons a year for the next three years. That will be a relief for U.S. farmers, who have lost one of their top soybean customers as Beijing has opted to buy instead from Brazil and Argentina.

Before the trade spat, China had been buying about 25 million metric tons a year. Unlike in the first Trump term, when Beijing went on a similar buyer’s strike, there has been no U.S. bailout for farmers.

For its part, the U.S. also halved the 20% fentanyl-related tariffs it implemented early this year as Beijing again said it would increase efforts to curb exports of chemicals that go into the drug. U.S. officials said that brought the overall tariff levels imposed to 47% from 57%.

The U.S. also extended by a year a pause on an increase in the so-called reciprocal tariffs that were set to go into effect Nov. 10. It suspended a probe into shipbuilding that had triggered port fees earlier this month. China agreed to drop fees on shipping it imposed in response.

Both sides took steps back on measures that had triggered the latest flare-up. Treasury Secretary Scott Bessent told Fox Business that for a year, the U.S. would suspend a change to its “Affiliates rule” that expanded the number of Chinese companies on a blacklist restricting certain transactions from 2,000 to more than 10,000. Beijing agreed to delay export controls on rare-earth minerals essential to making autos, semiconductors and military equipment, also for a year.

Other points remained hazy. While Xi has sought a relaxation in the growing web of export controls that the U.S. is using to restrict China’s access to advanced technology, including chips from Nvidia, it wasn’t clear what was decided on this front.

Trump said the two didn’t talk about Chinese access to Nvidia’s more advanced Blackwell chip, but also noted that Nvidia Chief Executive Jensen Huang will be talking with Chinese officials. After initially banning the sale of advanced chips such as Nvidia’s H20, Trump eased restrictions a couple of months ago, only for Beijing to push its companies to not buy them as it tries to become more self-reliant.

While Trump described the meeting as a 12 out of 10, some analysts said he made bigger and faster concessions than they anticipated, in part because of pressure from farmers as bankruptcies rise and the lack of near-term alternatives to China’s dominance in rare earths.

That leverage gives China a stronger hand at the moment. Export limits could quickly create problems in auto, industrial, and tech supply chains, while U.S. tech restrictions pose a longer-term challenge to China’s efforts to be dominant in tech.

“This a major win for Xi Jinping, in economic terms but especially in propaganda terms at home and abroad,” says Michael Hirson, head of China research for 22V Research. “Xi was able to force Trump to back down on tariffs, export controls, and port fees, all without making painful concessions.”

But analysts say Beijing could be at “peak leverage” on rare earths as the U.S. has rushed to sign agreements with allies, including Malaysia and Australia, to try to reduce its dependence on China. That could take years, but the process has been accelerated as Beijing has begun to wield its power.

China, in the end, is also vulnerable in that its economy rests on the world buying its surplus of exports. While both countries are testing how far they can use their leverage as they seek to shore up their economic and national security, for now, they depend on each other.

“That leads to this ironic negotiating stance in which it seems they need to be more cooperative to reinforce the existing order,” says Logan Wright, a partner at Rhodium Group.

The result is likely a standstill, but one that can be upended by the long list of unresolved issues and details in the agreement that have yet to be fleshed out, says Everett Eissenstat, a partner at Squire Patton Boggs who served as deputy director of the National Economic Council in the first Trump administration.

While Bessent said the agreement trade negotiators hashed out in Malaysia ahead of the Trump-Xi meeting could be signed as soon as next week, many of the earlier U.S. tech restrictions on China persist, as do the rare-earth controls Beijing implemented a couple of months ago.

International politics are another source of potential friction. Trump mentioned that Taiwan wasn’t part of the discussion, nor was Beijing’s role as the biggest buyer of Russian oil—a significant point as the U.S. and its allies seek to press Moscow to end the war in Ukraine.

Other areas of uncertainty include Chinese approval of a U.S. deal for ByteDance’s TikTok business and the possibility that China could be part of a large-scale oil-and-gas transaction in Alaska. Trump mentioned that China agreed to buy U.S. energy, while Bessent said Beijing will soon give the go-ahead for the TikTok agreement.

Some see Trump’s planned state visit to Beijing in April as potentially helping to achieve stability for the near term. But the room for miscalculations is vast. Domestic politics and other national security concerns could trigger a flare-up, cautions David Meale, head of Eurasia Group’s China practice and a former State Department deputy chief of mission for Beijing.

If there is a positive for markets, it is that following all the drama, the two sides are largely back to their stances before Trump rolled out his “Liberation Day” tariffs in April. Both Chinese and U.S. stocks have risen since then.

The general positive tone on both sides following the 100-minute meeting supports the view that both leaders are committed to keeping the relationship on an even keel, says Vivian Lin Thurston, portfolio manager for William Blair’s Emerging Markets Growth fund (WBEIX). That could mean investors have a more muted reaction with each flare-up.

Write to Reshma Kapadia at reshma.kapadia@barrons.com

“