US and China Make Progress on Trade Issues Ahead of Trump-Xi Meeting

Strategic Insights -

The United States and China have made some progress on key trade issues, including China's stranglehold on strategic minerals, American export controls, and soybean purchases, ahead of the meeting between President Donald Trump and China's Xi Jinping in Busan, South Korea. While a grand bargain to resolve all issues is unlikely, the two sides have reached a preliminary consensus on some areas, sending reassuring signals to financial markets and preventing further economic damage. Negotiators have met multiple times this year, with the most recent meeting in Kuala Lumpur, Malaysia, and have made some progress on key issues.

Key Takeaways:

  • China's rare-earth export controls have crippled US and other foreign companies, but the US and other countries are investing heavily in rare earths to break China's domination. China may delay rare earth export controls for a year while it reexamines the issue.
  • The US and China have reached a preliminary consensus on soybean purchases, with the US expecting China to delay rare earth export controls and potentially increase soybean imports from the US.
  • The US is expected to relax export controls on sensitive tech exports that Chinese firms rely on, and China has protested the US's new rule extending export restrictions on affiliates in which blacklisted foreign companies own stakes of at least 50%.
  • The US and China have made some progress on fentanyl tariffs, with discussions yielding initial agreements to stop precursor chemicals from coming into the US.
  • The two countries have not made significant progress on the broader issue of overcapacity, with the US and other wealthy countries determined not to let Chinese overcapacity hollow out their industries.
  • The US-China trade relationship remains complex and contentious, with multiple areas of friction and no clear end in sight.

Statistics:

  • China accounts for 85-90% of the world's rare earth mineral production (source: Peterson Institute for International Economics).
  • The US Commerce Department issued a new rule extending export restrictions not only to previously blacklisted foreign companies but to affiliates in which they own stakes of at least 50% (source: US Commerce Department).
  • The US slapped a 10% tax on Chinese imports in February, doubling it to 20% a month later, to pressure Beijing to do more to stop the flow of chemicals that can be used to make fentanyl (source: The Wall Street Journal).
  • China's soybean imports from Brazil and Argentina have increased significantly this year, eclipsing US soybean imports (source: Reuters).
  • The US and China have met multiple times this year, with the most recent meeting in Kuala Lumpur, Malaysia (source: Reuters).

Sources:

  • Peterson Institute for International Economics: "U.S. Trade Policy and the New Challenges of the Global Economy"
  • US Commerce Department: "Extension of Export Restrictions on Affiliates of Blacklisted Foreign Companies"
  • The Wall Street Journal: "Trump Slaps 20% Tariff on Chinese Imports to Pressure Beijing on Fentanyl"
  • Reuters: "China's Soybean Imports from Brazil and Argentina Surpass US Imports"
  • Reuters: "US and China Meet in Kuala Lumpur, Malaysia, for Trade Talks"