Xi plays long game on US-China trade as Trump seeks quick wins
WHILE Donald Trump hailed the outcome of trade talks in London, Xi Jinping walked away with an understated strategic gain: a negotiating process that buys China time and helps defuse the threat of more harmful tariffs and technology curbs.
Shortly after two days of negotiations wrapped, Trump declared Wednesday on social media that a deal had been 'DONE' to restore the flow of critical magnets from China, and pledged to lift curbs on student visas. Hours earlier, US Commerce Secretary Howard Lutnick revealed Washington would unwind its recent tech curbs, if niche metals essential to US auto and defense firms now flowed fast enough.
China's focus was very different. A People's Daily commentary on Thursday — Beijing's most substantial remarks so far on the talks — made no mention of export controls. Instead, the Communist Party mouthpiece touted an 'institutional guarantee' established in Geneva for the two sides to bridge differences via a 'consultation mechanism.' In a long-awaited leaders' call before the London negotiations, Xi told Trump the importance of using this channel, it added.
The contrast illustrates a disconnect in how the world's biggest economies want to manage their trade dispute, and broader rollercoaster relationship. While Trump seeks quick deals done directly with top leaders, Xi favors a framework led by his lieutenants that wards against being blindsided. Such haggling could drag on for years, with the 'Phase One' deal from the last trade war taking most of Trump's first term.
'Xi is playing a longer game on US-China trade. His time in office is simply much longer than Trump's,' said Christopher Beddor, deputy China research director at Gavekal Research. 'That's not to say there's never any short-term thinking, but the lack of term limits presents very different incentives than for Trump.'
While slow-walking negotiations allows China the chance to assess how hard a bargain Trump drives with other nations, the lingering uncertainty is bad for business, he added.
Xi showed last week he can be flexible, getting on the phone with Trump as ties spiraled, breaking from the normal protocol to set up such an interaction. In the Biden era, then National Security Advisor Jake Sullivan and Foreign Minister Wang Yi would huddle in overseas locations for days before their leaders spoke, managing outcomes and expectations.
While the Geneva talks last month wrapped with an identical US-China statement, suggesting a degree of alignment, that accord quickly fell apart over US claims China reneged on a promise to release shipments of rare earths. Beijing says it always intended to keep in place a permit process, which American companies complained moved so slowly some factories were forced to pause production.
The lack of a detailed read out from either side this time around has left much in doubt, including over what Beijing committed to doing on the export of niche metals used in everything from fighter jets to electric vehicles.
Lutnick told CNBC on Wednesday that China was going to approve 'all applications for magnets from United States companies right away' — a sweeping claim that appeared to leave plenty of room for disappointment.
Chinese Commerce Ministry spokesman He Yadong pledged his country would 'fully consider the reasonable needs and concerns of all countries in the civilian sector,' at a regular press briefing in Beijing on Thursday, adding that approval work was being strengthened.
'The Chinese incentive is also to keep cards close to their chest, and not make a lot of proclamations about what they have or have not committed to,' said Arthur Kroeber, founding partner and head of research at Gavekal. 'There is a lot of leeway for them within the whole export licensing regime.'
One approach could be to restart enough export licenses so commercial buyers aren't stymied, but not so much that firms can stockpile, thus blunting Beijing's future leverage, he added.
Adding to the fuzziness, Trump declared on social media that China now faces a 55% charge, a number that appears to include levies introduced during his first presidency. It also combines a 10% baseline duty imposed by Trump and a 20% tax tied to fentanyl trafficking — an area where Beijing was seen as having room to negotiate if it stepped up scrutiny of its companies.
Lutnick cast doubt on that, and raised questions about the nature of future negotiations, saying tariffs on China would 'definitely' stick at their current level. That suggests a 90-day pause set to expire in August on Trump's blanket 145% rate is now irrelevant. Such a position also dilutes the incentive for Beijing to offer concessions in future trade talks, if tariffs can't budge.
While China has felt the pain from US levies, with exports to the world's largest economy plunging 34% in May, Trump appears to be in the bigger hurry to get a deal.
His administration is facing a self-imposed July 9 deadline to either strike pacts with dozens of trading partners or reimpose sweeping tariffs. In a sign of the Republican leader's growing impatience, he warned Wednesday that he will soon send letters to countries saying, 'this is the deal, you can take it or leave it.'
Exemplifying that willingness to keep things moving, Trump's team this week put export controls on the negotiating table — previously, such tools have been justified with national security concerns, and were largely off limits.
Watering down that rationale could open the door to more cooperation, and advance Trump's stated goal to 'open up China to American trade.' Still, China is unlikely to agree to large purchases of goods that compete in areas where Beijing is looking to build self sufficiency and nurture national champions.
Rebalancing their economies, a concept touted by US Treasury Secretary Scott Bessent, could involve attracting more Chinese investment into the US. Policy whiplash might deter companies from pouring money into the US, even if Xi were to encourage them to do so.
Addressing these issues will take time, requiring long discussions using the mechanism China and the US included in what Beijing called their 'hard won' agreement.
'Some people say that the result of the London talks was just a framework,' said Zhu Junwei, a former researcher in the People's Liberation Army who is now director of American research at Grandview Institution in Beijing. 'It's better to have a framework than have nothing.' –BLOOMBERG
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