Trump-Xi Truce Buys Time as Both Seek Leverage in Broader Fight

Article content

“We have a deal — now, every year, we’ll renegotiate the deal,” Trump told reporters aboard Air Force One. He added that he thought it would “be very routinely extended.”

Article content

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.

Article content

“The agreements reached today will deliver Prosperity and Security to millions of Americans,” he wrote.

Article content

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%.

Article content

“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.” 

Article content

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.  

Article content

Article content

‘Drifting Apart’

Article content

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 ship-building and rare earths — areas that would put him in a stronger position to negotiate with Xi a year from now. 

Article content

China is similarly moving to become less dependent on the US for key technology. The Communist Party’s recently unveiled 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. 

Article content

“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. 

Article content

GLOBAL REACT: Trump, Xi’s Hot Trade War Over, Cold War On

Article content

Trump’s victories from the deal may offer some short-term political gains. China’s resumption of agricultural purchases like soybeans will help with farmers in the president’s base, while TikTok is something he can tout ahead of the mid-term election next year. 

Article content

Article content

But 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 will only enrage those who believe Beijing uses inscrutable ownership structures to circumvent US rules blocking access to sensitive technology. 

Article content

‘America’s Weak Spot’

Article content

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%. 

Article content

Under the US export rules introduced last month, subsidiaries at least 50% owned by blacklisted firms would be subject to the same curbs as their sanctioned parent. That would’ve expanded restrictions to 20,000 companies, widening the measure’s “blast radius of Chinese firms off-limits to US exports 15-fold,” according to a Monday note by Martin Chorzempa, senior fellow at the Peterson Institute for International Economics in Washington.

Article content

Tu Xinquan, a former adviser to China’s Commerce Ministry, said that both sides took a step back on Thursday because neither could really bear the economic pain. At the same time, he said, China’s control over rare earths gave it a “trump card” it didn’t have the determination to use in previous years. 

Article content

“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.”

Article content

—With assistance from Winnie Hsu, Josh Wingrove, Jennifer A. Dlouhy, Jing Li, Yujing Liu, Lucille Liu, James Mayger and Josh Xiao.

Article content