Diplomats Seek Breakthrough in London Trade Truce
Top-level officials from Washington and Beijing convened at London's historic Lancaster House to try to uphold a fragile trade truce. The US team—led by Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and Trade Representative Jamieson Greer—pressed China to lift export restrictions on rare earth minerals, a linchpin in sectors from electric vehicles to semiconductors. China's delegation, headed by Vice‑Premier He Lifeng and joined by Commerce Minister Wang Wentao and vice‑minister Li Chenggang, emphasised sustaining the state‑driven economic model while seeking concessions on US visa rules and technology access.
Talks resumed for a second day, with a declared focus on export‐control mechanisms that threaten to unravel the Geneva‐brokered tariff truce agreed on 12 May. That earlier pact suspended punitive levies exceeding 100 percent for 90 days, offering markets a brief reprieve. The inclusion of Howard Lutnick underscores the significance of rare earths, as Washington eyes relief from export curbs imposed this year.
Economic data highlights the toll of stifled trade: China's exports to the US plunged 34.5 percent year‑on‑year in May—the steepest decline since early 2020—driven by both tariff escalation and export restrictions. In the US, while inflation remains subdued and employment resilient, early indicators hint at a cooling economy amid these disruptions.
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Diplomatic momentum emanates from a phone call between President Donald Trump and President Xi Jinping on 5 June—their first such exchange since Trump's inauguration—where Xi reportedly signalled Beijing's willingness to resume shipments of rare earths. Trump later described the discussion as yielding 'very positive' outcomes and claimed he was 'only getting good reports' from the London delegation.
US National Economic Council Chairman Kevin Hassett offered further assurances, stating the administration was preparing to ease certain high‑tech export restrictions and expecting China to significantly ramp up rare earth shipments.
Chinese officials upheld their stance on economic self‑reliance, under Xi's 'dual‑circulation' policy, signalling reluctance to overhaul structural economic controls. Analysts suggest Beijing may exchange modest export concessions for US rollbacks on visa limits for Chinese nationals and access to cutting‑edge semiconductor technology.
Despite the diplomatic overtures, analysts caution that ambitions for sweeping reform are unlikely. The US retains a hawkish posture and is pursuing broader decoupling from China on strategic supply chains, reducing the odds of a comprehensive agreement. Eurasia Group chief Ian Bremmer warned there was 'little prospect for the bilateral relationship to become constructive' amid entrenched structural differences.
European manufacturers, notably German automakers, have raised alarm over supply bottlenecks from China's rare earth export licensing regime, implemented in April, citing risks to global production schedules. The talks have therefore resonated well beyond the bilateral agenda, prompting heightened interest from supply‑chain dependent nations.
UK officials, though officially not party to the negotiations, provided logistical support and voiced encouragement. Chancellor Rachel Reeves met with both delegations on the sidelines, while Business Secretary Jonathan Reynolds engaged with Chinese counterparts. British leaders clearly signalled a preference for diplomacy, stating that a trade war 'is in nobody's interests'.
Institutionally, this dialogue reflects the newly established China‑US economic and trade consultation mechanism, replacing previous multi‑track platforms and underscoring a shift towards direct and high‑level engagement.
Legal complications persist in Washington: the Trump administration is appealing a federal ruling that its tariff actions exceed presidential authority. A decision from the appellate court, possibly extending to the Supreme Court, could determine whether tariffs remain in force during the review process.
Markets responded with tentative optimism: global equities recovered a significant portion of pre‑talk losses following the Geneva truce and subsequent London announcements. However, investors remained cautious, aware the staged progress may not translate into lasting reform.
The London round, stretching into Tuesday, is shaped by urgency driven from both capitals. Washington seeks tangible actions: resumed access to rare earths and easing of advanced technology curbs. Beijing aims to protect its economic model while negotiating incremental gains, such as improved visa issuance and broader recognition of Chinese tech firms.
This high‑stakes diplomacy marks a pivotal moment in a wider geopolitical contest for economic supremacy. Whether the Lancaster House talks blossom into a durable détente or merely delay the next escalation depends on bridging both substantive and strategic divides.
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