US President Donald Trump emerged from his meeting with Chinese President Xi Jinping (習近平) beaming, labeling the conversation “truly great.”
However, the one-year truce struck on Thursday in South Korea is likely to only stabilize relations between the world’s two largest economies rather than resolve fundamental differences, with both sides buying time to further reduce dependence on each other in strategic areas. It made clear just how much stronger China has become since Trump’s first term in office.
Trump’s move to cut the fentanyl tariff and extend the existing truce on other tariffs would leave many products facing a levy about 47 percent, low enough for China’s massive manufacturing base to remain competitive with regional rivals. Just as significantly, the US agreed to suspend a rule expanding restrictions on blacklisted Chinese firms, showing that Xi’s sweeping rare earths curbs could potentially put a cap on new US export controls — something China has sought for years.
“China gave some ground, but the clear dynamic is how Chinese threats have gotten the US to back off a series of proposed restrictions,” said Scott Kennedy, senior adviser at the Center for Strategic and International Studies in Washington. “Xi has created more safe space for China’s economic system and its efforts to achieve greater global leadership.”
Trump secured the resumption of soybean sales and rare earths flows, addressing key political and economic vulnerabilities. The agreement to sell the US operations of ByteDance Ltd’s TikTok provides Trump the chance to brag to younger voters he kept the popular social video app alive. Hawks in Washington would be relieved Trump did not allow China access to Nvidia Corp’s flagship artificial intelligence chips or soften the US commitment to Taiwan.
Still, the agreement did not yield the type of structural changes that Trump has long promised to address the imbalanced US-China trading relationship. For markets eager to escape the tit-for-tat escalations and broad uncertainty that has defined recent months, it was hard to read Thursday’s result as more than a temporary pause in a longer-term struggle for supremacy that might last for years.
“I don’t think you’re going to see decoupling — I think you’re going to see strategic decoupling,” Robert Lighthizer, Trump’s lead trade negotiator with China during his first term, told Bloomberg Television on Thursday as the summit kicked off.
“This is only going to be something that’s going to last for a period of months, or perhaps a year or so,” he added. “And then we’re going to be back there, and have to look at it again.”
Trump said as much on the way back from the meeting in Busan, South Korea, near where leaders are gathering for the APEC summit. He mentioned he would be visiting China in April, and Xi would then head over to the US at some point after that.
“We have a deal — now, every year, we’ll renegotiate the deal,” Trump told reporters aboard Air Force One, adding that he thought it would “be very routinely extended.”
Trump seemed happy with the result, writing on social media that the agreement would be a boon to farmers, help curb the fentanyl crisis and could result in an energy deal that boosts the US economy.
“The agreements reached today will deliver Prosperity and Security to millions of Americans,” he wrote.
Markets, for their part, seemed unimpressed. US stock futures were little changed as the New York trading day began, while China’s benchmark CSI 300 Index closed down 0.8 percent.
“We’ve heard this playbook before: optimistic tone, little follow-through,” said Charu Chanana, chief investment strategist at Saxo Markets in Singapore. “The meeting had all the right optics, but what markets really wanted was a joint statement — something concrete to turn optimism into conviction.”
With competition between the US and China only increasing over the past decade, the agreement appeared more designed to avoid mutually assured destruction rather than find ways to integrate more broadly by taking down national-security restrictions and facilitating cross-border investment flows.
Indeed, Trump used his broader swing through Asia to bolster relations with key allies such as Japan and South Korea, and win investments from them in shipbuilding and rare earths — areas that would put him in a stronger position to negotiate with Xi a year from now.
China is similarly moving to become less dependent on the US for key technology. The Chinese Communist Party’s recently unveiled a five-year plan focused primarily on achieving key tech breakthroughs, particularly in high-end chips, as China moves to create supply chains independent of the US.
“Make no mistake, the two countries are drifting apart and are frantically building their own autonomous economic ecosystems,” Stephen Jen, chief executive officer of Eurizon SLJ Capital, wrote in a note to clients after the meeting.
Trump’s victories from the deal might offer some short-term political gains. China’s resumption of agricultural purchases like soybeans would help with farmers in the president’s base, while TikTok is something he can tout ahead of the mid-term election next year.
However, there was little indication that Thursday’s agreement would do much to reduce the massive trade imbalance between the two countries or address concerns about industrial subsidies. Abandoning the affiliate rule solves complaints about burdensome regulations, but would only enrage those who believe Beijing uses inscrutable ownership structures to circumvent US rules blocking access to sensitive technology.
In the broader fight, China is feeling confident. Trump’s move to pause the affiliates rule marks the second time Xi has successfully used his leverage on rare earths to force the US president to back down, with the first being the initial agreement to lower tariffs from an astronomical 145 percent.
Under the US export rules introduced last month, subsidiaries at least 50 percent owned by blacklisted firms would be subject to the same curbs as their sanctioned parent. That would have expanded restrictions to 20,000 companies, widening the measure’s “blast radius of Chinese firms off-limits to US exports 15-fold,” said Martin Chorzempa, senior fellow at the Peterson Institute for International Economics in Washington.
Tu Xinquan (屠新泉), a former adviser to China’s Ministry of Commerce, said that both sides took a step back on Thursday because neither could really bear the economic pain.
At the same time, China’s control over rare earths gave it a “trump card” it did not have the determination to use in previous years, he said.
“We can’t say this card will always work, no one can say that,” he said. “But at least for now, we’ve seized America’s weak spot.”
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