US and China reach a ceasefire in their trade war after talks in London

After two days of marathon talks in London, the US and China have agreed to “roll back” some of the “punitive measures” they had taken and restore the trade truce agreed in May, says Alan Rappeport in The New York Times. The meetings followed a reportedly friendly call between Donald Trump and Xi Jinping last week. Negotiators, led by US Treasury secretary Scott Bessent and Chinese vice-premier He Lifeng, are expected to seek final approval for the “framework agreement” from both leaders; assuming they approve, it will take immediate effect.

Although the two countries reached a 90-day tariff truce in Geneva on 12 May, “deep and fundamental differences remain” – including disputes over “currency manipulation, export subsidies and other non-tariff barriers”, says Linggong Kong in The Conversation. The Geneva deal came under pressure after Washington accused Beijing of “dragging its feet” on an agreement to speed up the export of rare-earths, while Beijing accused the US of being the first to break the agreement by rolling out a wave of fresh measures, including new restrictions on the sale of AI chips and chip-design software to Chinese companies, and cancelling visas for Chinese students. The day after the agreement, Trump also issued an order banning US firms from using Huawei AI chips.

A win-win for both US and China

From China’s perspective, it returned to trade talks with a “strong hand”, says Katrina Northrop in The Washington Post. Its “geopolitical ace card” is its control over much-needed rare-earths, which are critical components in products as varied as cars, fighter jets, iPhones and medical machines. China accounts for 70% of global rare-earth mining and more than 90% of the processing. Yet “for all its bravado”, Beijing doesn’t actually “hold all the cards”.

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Economic growth remains weak; it was grappling with a property crisis even before any trade frictions, and exports to the US have declined by a “precipitous 34%” (although this has been offset by increased sales to Europe and Southeast Asia).

China is vulnerable to controls on high-tech exports from the US, particularly cutting-edge semiconductors, which it has not been able to produce domestically, hindering its ambitions to become an AI leader. The US also supplies China with more than 99% of a key export, ethane, and could apply pressure by “stepping up sales of arms to Taiwan”, says Bloomberg.

Nonetheless, the truce is good news, says Matthew Lynn in The Spectator. The “most important single trading relationship in the global economy is starting to get back on track”. But time is short. Trump has only “suspended the tariffs until August” so a “broader agreement” will need to be reached by then. China will almost certainly have to make some “big concessions”, including allowing the US tech giants (Meta, Netflix, et al.) full access to its domestic market, and boosting domestic consumption in order to reduce its trade surplus with the US. In return, Trump could lower tariffs permanently, allowing China to maintain the “export-led growth model that has transformed its economy over the last 30 years” and keep expanding into tech-based industries traditionally dominated by the West. Such a deal “won’t necessarily happen”. However, if it did, it would be a “win-win for both sides” and provide a “huge boost” to the global economy.

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