The US and China capped two days of high-stakes trade talks with a plan to revive the flow of sensitive goods — a framework now awaiting the blessing of Donald Trump and Xi Jinping.
After some 20 hours of negotiations in London, US Commerce Secretary Howard Lutnick said both sides had established a framework for implementing the Geneva consensus that last month brought down tariffs. “First we had to get sort of the negativity out,” he said. “Now we can go forward to try to do positive trade, growing trade.”
While a more upbeat tone should reassure investors worried about a decoupling of the world’s largest economies, details were scarce and the deal could still be nixed by top leaders. The discussions also did little to fix issues such as China’s massive trade surplus with the US, and a belief in Washington that Beijing is dumping goods on its markets.
Capping a marathon round of haggling that stretched over 12 hours on Tuesday, Lutnick said the Chinese had pledged to speed up shipments of rare earth metals critical to US auto and defense firms, while Washington would ease some of its own export controls — suggesting progress was made on two of the thorniest issues in bilateral ties.
The US and Chinese delegations will take that proposal back to their respective leaders, according to China’s chief trade negotiator Li Chenggang. Negotiations were “in-depth and candid,” he told reporters in brief remarks before midnight outside Lancaster House, a Georgian-era mansion near Buckingham Palace that served as this week’s meeting site.
In additional comments on Wednesday, He Lifeng, the Chinese vice premier who led Beijing’s delegation, called on both countries to take advantage of their trade negotiation mechanism to “improve consensus, reduce misunderstanding and strengthen cooperation” after the talks, state broadcaster China Central Television reported.
Market reaction to the announcement was muted, with US equity futures edging lower and the offshore yuan little changed. The Chinese onshore benchmark stock gauge gained 0.8% at the close, the most in nearly a month. European stocks were little changed.
“Markets will likely welcome the shift from confrontation to coordination,” said Charu Chanana, chief investment strategist at Saxo Markets. “We’re not out of the woods yet — it’s up to Trump and Xi to approve and enforce the deal.”
The Chinese Commerce Ministry didn’t respond to requests for comment. China’s Foreign Ministry spokesman, Lin Jian, said he had no further information to offer.
The London meetings came together at short notice after Trump last week spoke to Xi for the first time since taking office, in a bid to stop ties spiraling over claims both sides had reneged on the Geneva accord. US officials accused China of stalling magnet exports, while Trump officials angered Beijing with new controls on chip design software, jet engines and student visas.
That spat showcased the growing role of export controls in modern trade warfare, where access to rare metals or tiny microchips can give one economy leverage over a rival. European trade officials and global carmakers also sounded the alarm in recent weeks on disruption of supplies from China that are critical for fighter jets and electric vehicles.
Lutnick suggested they’d found a way to overcome the deadlock.
“There were a number of measures the United States of America put on when those rare earths were not coming,” he added. “You should expect those to come off — sort of, as President Trump said, in a balanced way.”
Allowing technology that’s critical to Beijing’s military advancement to become a bargaining chip would mark a major departure for Washington, which has justified such export controls with national security concerns. It would also open the door for China to use its dominance of rare earths to put a lid on further limits on cutting-edge chips.
The US relenting on export controls is “unprecedented,” Wendy Cutler, a former senior US trade negotiator now at the Asia Society Policy Institute, wrote on LinkedIn, while pointing to the fragility of the current arrangement.
It took two days, three US Cabinet members and one Chinese vice premier to get back to upholding the Geneva accord, she added. That’s “a preview” for the next 60 days, she said, when US and Chinese officials have to hammer out agreements on excess capacity, unfair trade practices and the flow of fentanyl, as part of a broader trade agreement.
US Trade Representative Jamieson Greer said the issue of fentanyl, which the Trump administration has cited as a rationale for imposing a 20% tariff on China, was a priority for the US president. “We would expect to see progress from the Chinese on that issue in a major way,” he added.
Greer said there are no other meetings scheduled, adding that both sides talk frequently. Striking a similar tone, China’s Li said: “We hope the progress we made will be conducive to building trust.”
The US and China are about a third of the way through a 90-day reprieve on the crippling tit-for-tat tariffs imposed on each other through April. Though the Geneva settlement dramatically reduced duties, trade remains disrupted — China’s exports to the US fell in May by the most since early 2020 when the pandemic shut down the Chinese economy.
The trade war’s biggest casualty hasn’t been lost sales, but lost trust, according to Josef Gregory Mahoney, a professor of international relations at Shanghai’s East China Normal University.
“We’ve heard a lot about agreements on frameworks for talks,” he added. “But the fundamental issue remains: Chips vs rare earths. Everything else is a peacock dance.”
A message from Advisor Perspectives and VettaFi: To learn more about this and othertopics, check out some of our webcasts.
Bloomberg News provided this article. For more articles like this please visit
bloomberg.com.
Read more articles by Daniel Flatley, Annmarie Hordern
