Trump and Xi’s economic ceasefire is holding – just

Donald Trump ended his China trip with little to show for it. With a suite of business leaders joining the US President in China, it was clear that the American agenda would focus on the economic relationship. The outcome was minimal, relieving none of the structural tensions in the US-China relationship.

The economic ceasefire – first agreed in November last year in South Korea on the sidelines of the APEC summit – saw both sides lower bilateral tariffs and China pause its rare earth export controls. That truce appears to be holding. While Xi has given Trump some additional concessions, they are small and easy to renege on. The bigger sticking points around tariffs, critical mineral and semiconductor export controls, AI competition, and the broader imbalance in bilateral trade remain unaddressed.

Progress was shallow and can be undone quickly

Perhaps the biggest news out of Trump’s trip is the establishment of a Board of Trade and Board of Investment or “councils”, as China’s Ministry of Commerce described them. These were key initiatives alluded to by White House officials in the lead-up to the talks. The aim is to manage trade of “non-sensitive” goods and discuss opportunities for bilateral investment. China also agreed to purchase US$17 billion in additional agricultural products and 200 Boeing aircraft, while restoring market access for poultry and beef producers in the United States.

These wins leave much to be desired.

Details are foggy on how the councils will work. At the very least, the two sides have a format to engage in regular dialogue. If the goal is managed trade, like that between Japan and the United States in the 1980s, it will likely fail. Boeing’s shares fell on news about the deal given expectations for more aircraft to be ordered. Purchase agreements Beijing committed to under Trump’s Phase One Deal in January 2020 were not met, so it will be surprising if these newer commitments amount to much.

The real issues have not gone away

The United States is primarily concerned about Beijing’s critical mineral export restrictions, unbalanced bilateral trade, and China’s enormous US$1.2 trillion goods trade surplus with the rest of the world.

China’s rare earth export controls are on pause until November 2026. That deadline still looms over the relationship. And despite the International Monetary Fund estimating that China’s currency is undervalued by 16% and industrial subsidies are 4% of GDP, Chinese authorities offered no sign of addressing these drivers of China’s unbalanced trade.

China, for its part, is concerned about US trade policy and semiconductor export controls. Neither were addressed. But Trump has form in making deals even in the face of those who support a more hawkish US policy towards Beijing. The fact that Jensen Huang, CEO of Nvidia, the firm designing the advanced semiconductor chips crucial for training the world’s most powerful AI models, accompanied Trump to China will also be unnerving. As will reports of Trump’s extended family seeking to make business deals parallel to these negotiations, with the business in question operating AI-related data centres.

However, no major changes to US semiconductor policy towards China were forthcoming. The US government announced approval for ten Chinese firms to purchase Nvidia H200 chips. Exports of these semiconductors are already permitted by Washington, making the extension to more companies an olive branch to an otherwise unchanged policy stance.

It’s the economy, stupid

One explanation for the lack of any substantial progress is that both sides are negotiating from a position of weakness: Trump’s is political, and Xi’s is economic.

Trump’s approval ratings are suffering from economic mismanagement. Tariffs are unpopular, farmers have been targeted by China in retaliation, and US inflation is now growing thanks to the energy shock from the Iran war. This is eroding real wages for American workers.

China’s economy is still suffering from domestic deflationary pressures. With the Iran war energy price shock hitting Asia hard, tepid household consumption is unlikely to recover soon.

Both sides appeared concerned about the economic impacts of the Iran war, issuing joint statements in support of the reopening of the Hormuz Strait and agreeing that Iran should not obtain nuclear weapons. Beijing is yet to capitalise on its close relationship with Tehran to force any resolution.

That leaves the rest of the world with little to celebrate. Those US allies feeling the pinch of China’s export surge will see no relief. Developing economies will lament that US trade policy will remain in flux and at the whim of the president. This summit only entrenches uncertainty in the world’s most consequential relationship. That will weigh on global trade and investment growth.

With Trump and Xi expected to meet as many as three more times this year – in Washington, at APEC in Shenzhen and the G20 in Miami – the world will wait to see if this trade war ceasefire holds.