- A deal with China is done, according to President Trump, but its scope seems to be limited to easing some recent non-tariff restrictions, including China’s rare earth export controls. The wider trade and economic issues that were supposed to be the focus of negotiations after the Geneva talks have not been addressed. On the plus side, the two sides are still talking and sound positive. But tariffs remain high and policies on both sides are creating pressure for the two economies to decouple.
- The two sides announced in Geneva that they were cancelling or pausing for 90 days all but 10% of the post-Liberation Day tariffs. China also said it would “suspend or remove the non-tariff countermeasures taken against the United States” since 2nd April. Talks on wider issues were supposed to begin after that.
- But they never started. The consensus broke down over exactly what China had pledged to do on non-tariff measures. That was the focus of the London talks. The US appears to have come away from Geneva believing that China had agreed to remove export controls on rare earths. China’s position is that it only agreed to roll back measures taken since 2nd April that were directed at the US – for example, immediately after the Geneva talks, it removed 17 US firms from its unreliable entity list that had been added in April.
- Export controls, China argues, have a global scope: they don’t specifically target the US (European carmakers have been complaining recently too). What’s more, while several rare earths were added to the control list in April, many of China’s critical mineral export controls were already in place before April – we wrote about them in January here.
- Last week’s call between the presidents signalled that both sides were willing to seek the compromise that seems to have been found in London. Details are sparse but it appears that China will speed up issuance of licenses for exports to the US and some US non-tariff measures will be rescinded in return.
- If this is all there is, it just rolls the clock back a month. That seems to be enough for President Trump. He is calling this a deal, “subject to final approval” and says the relationship with China “is excellent”. In the Trump presidency, as long as he is happy, all is well even if the two sides have made hardly any progress.
- But we shouldn’t lose sight of the fact that the economic relationship is in concrete terms in far worse shape than a few months ago. In the month since the Geneva agreement alone, the US has put new controls on exports to China of chip design software, certain chemicals, and parts for jet engines and nuclear plants. Marco Rubio has pledged to “aggressively” revoke Chinese student visas. The US Commerce Department has issued guidance that any company using Huawei’s Ascend chips anywhere in the world is violating US export controls and subject to sanction.
- Even if all of that is rolled back in exchange for access to rare earths, Chinese firms will face tighter restrictions on access to US chips and technology than at the start of the year and much higher tariffs: President Trump is today highlighting that US tariffs on China will remain far higher than they were. The average US tariff on China is 40% using 2024 weights compared with 11% in January, while China’s tariff on the US is 25% compared with 15% in January.
- Meanwhile, the past few weeks have demonstrated that China’s control of critical mineral supply gives it more leverage than many had believed. US imports of rare earths amounted to only $170m last year, but a brief disruption in supply pushed China’s restrictions to the top of the US agenda. China’s export control system will continue to allow Beijing to control the flow of critical minerals and who gets access to them.
- In these circumstances, any rolling back of non-tariff barriers will open a window for both sides. US firms will try to amass stockpiles of rare earths, Chinese firms of advanced chips. But neither side will bank on that window remaining open: in the long-run, both sides will look for alternative suppliers. That’s particularly true when the state of the relationship hangs to such an unusual degree on the judgment of President Trump. A breakdown in the relationship is only a Truth Social post away.