With President Trump and President Xi set to meet this Thursday, October 30, at APEC in South Korea we are nearing the next major inflection point of global trade negotiations following “Liberation Day,” and the follow-on August 1 reciprocal trade deadline.
Notably, this will be Trump’s and Xi’s first in-person meeting since the 2019 G20 Summit in Osaka. In the lead up to Thursday’s meeting, U.S. and Chinese trade negotiators have been backchanneling since the IMF and World Bank meetings in Washington two weeks ago. Those talks resulted in a Friday call between Treasury Secretary Bessent and Vice Premier He Lifeng.
Heading into the weekend, Secretary Bessent told the media, “We’ve had a successful de-escalation,” and USTR Greer stated that there was an opportunity for “a good landing zone.” Chinese Commerce Minister Wang Wentao echoed the sentiment saying the two parties “can totally find ways to resolve each other’s concerns.”
Both the U.S and China entered the weekend meetings with softened rhetoric. The Malaysia talks involved Secretary Bessent, USTR Greer, Vice Premier He, and Chinese Vice Finance Minister Liao Min. Initial signs were productive, though details of a framework won’t be officially announced at least until Trump and Xi meet on Thursday.
So where do we stand? Below is a look at what each country brings to the negotiating table-both from a demand perspective as well the leverage they’ve been able to exert. The emerging contours of an agreement that could be announced by President Trump and Trump Xi this Thursday, appear to include:
- Rare earths export licensing regime pause (one year)
- Fentanyl tariff relief (exact percentage reduction unknown)
- Agricultural purchasing agreement (size unknown)
- U.S. shipping fee relief (details unknown)
- Extension of the reciprocal tariff truce (likely longer than the previous 90-days)
- Further details regarding the TikTok divestment
- De-escalation of threatened tariffs and retaliatory actions (e.g., 100 percent “off the table”)
- Global peace parameters (likely specific to Russia/Ukraine)
U.S. Negotiating Perspective
American leverage is more opaque than that of the Chinese. There is not one single card that the U.S. holds similar to China’s rare earths, but rather a series of measures and global alliances that threaten the CCP’s world view and ambitions.
At the core of its leverage, the U.S. remains the world’s largest economic and military superpower. As such, the U.S. has been able to successfully negotiate a series of trade agreements and strengthen both NATO and AUKUS. Reinvigorated economic accords with Argentina, the EU, Japan, Korea, the Middle East, Southeast Asia, and the UK have shown that a U.S. global alliance remains strong and formidable.
Key questions remain, including the status of U.S. trade negotiations with Brazil and India, the on-again-off-again cycle of USMCA, and the fate of the war between Russia and Ukraine. Ultimately, there are two asks from the U.S. side that-if not addressed-could result in a re-escalation of the U.S./China trade war.
First is the growing plight of U.S. farmers. Brazil has served as a critical tool for the CCP, fully supplanting the U.S. soybean and corn market in China. The Administration is further hamstrung by the government shutdown, only able to dispense with $3 billion in U.S. farm payments.
Meanwhile, tensions between the Administration and the domestic agriculture sector have recently escalated with the potential quadrupling of the beef quota from Argentina, from 20,000 metric tons to 80,000 metric tons. The latter move is part of the U.S. strategy to eliminate Chinese influence in Argentina (and other parts of South America), by aiding its struggling economy. The Argentine elections over the weekend helped further the U.S. strategy by providing President Milei’s governing party with a much-needed show of public support in its midterm elections.
As a way to highlight China’s coercion of U.S. agriculture and failure to adhere to previous agreements, USTR Greer announced on Friday a new Section 301 investigation into China’s performance (lack thereof) under the 2020 Phase One agreement. Announcing the investigation, Greer stated “The initiation of this investigation underscores the Trump Administration’s resolve to hold China to its Phase One Agreement commitments, protect American farmers, ranchers, worker, and innovators, and establish a more reciprocal trade relationship with China for the benefit of the American people.”
Put simply, anything short of a large-scale purchasing agreement coming out of Thursday’s Trump/Xi meeting will be viewed as a failure by the U.S. side.
Second, the U.S. has sought a repeal of the CCP’s recent rare earths export license regime and a reliable flow of critical derivative products like magnets to the U.S. and its global allies. In order to apply pressure, the U.S. had made the issue a global one, pressing allies to express strong opposition to the new regime. This strategy has been successful and has led to Chinese officials seeking to assure various trading partners that the regime isn’t as stringent as advertised.
The U.S. has further sought leverage through renewed trade negotiations, focusing on creation of a rare earths strategic stockpile for the U.S. and its allies. The recent agreement with Australia (including investment in Kazakhstan) and Southeast Asian countries at the ASEAN Summit prioritized rare earths (Cambodia, Malaysia). The election of Prime Minister Sanae Takaichi will also help further strengthen U.S./Japan ties through domestic investment in manufacturing, mining, and shipbuilding.
One key element to watch for at APEC will be progress between the U.S. and Korea over the $350 billion investment fund that was agreed to in concept last summer, but details of which have been difficult to nail down. President Trump and President Lee are expected to speak on the sidelines of APEC in attempt to make further progress.
Perhaps the most formidable element of a U.S.-led global trading bloc would be a renewed North American alliance via an updated USMCA. The official negotiating period was launched as expected in September but has been stymied by ongoing rhetorical disputes between the U.S. and Canada (e.g., Ontario ad campaign) and the imposition of Section 232 tariffs on trucks (primarily impacting Mexico).
Should the U.S. be able to secure deals with both Canada and Mexico, either prior to the July 1, 2026 deadline or following it, a North American alliance with strategic partnerships in South America could act as an insurmountable economic order of self-sufficiency, onshoring/nearshoring manufacturing, insulating agricultural interests, dominating energy markets, and securing critical supply chains.
As stated, these are opaque leverage points and many remain a work in progress or are years from becoming a reality (e.g., rare earth mining and refining, shipbuilding). But the U.S. still has specific tools that it can wield over the Chinese in talks, most notably: critical software and aviation export controls, including engines. The U.S. has also threatened to use its leverage as the world’s currency and banking leader to undermine the Chinese economy (e.g., Chinese bank sanctions, delisting Chinese companies).
Finally, the U.S. has been able to ramp up pressure on the China/Russia alliance, applying secondary sanctions to those importing Russian energy and sanctioning Russian oil companies Rosneft and Lukoil.
China Negotiating Perspective
The CCP recently concluded its Fourth Plenum, outlining the economic priorities of its 15th Five-Year Plan. Two goals are elevated above all others: advanced manufacturing and self-sufficiency of its tech sector; and the importance of the domestic service sector.
The first goal is not surprising but highlights the existential race for global AI supremacy and self-sufficiency in the hopes of creating one dominant world order. The second goal represents potential common ground with the U.S. – a transition from oversupply to an inward facing economy.
Interestingly, the Fourth Plenum was lightly attended. Nearly 20 percent of Central Committee members were missing-either due to President Xi’s ongoing government purge or absence. It’s difficult to know the state of Xi’s political strength. Some view the purge as a sign of his power over the Party while others view it as a sign of turmoil and volatility. We believe the former opinion is more likely the case.
Regardless, China has flexed its muscles of late to show how much leverage it has over the world’s supply of rare earths and magnets. This undoubtedly creates a massive liability for the U.S. in its efforts to win the AI race but also shows that the Chinese can often overstep and alienate other important trading partners.
Much of the CCP’s leverage has been decades in the making, with China Hawks pointing to its entrance into the WTO as the “original sin.” China’s “Belt and Road” initiative has given it access and influence over key developing markets across the globe and control of critical resources and infrastructure like ports and mining. The U.S. may seek to de-couple many of these economies (e.g., Argentina) but in many cases it’s too late (e.g., Brazil).
What the Chinese ultimately seek is likely to include a repeal of semiconductor export controls and the U.S. fentanyl tariffs, as well as a change in U.S. policy towards Taiwan, likely asking President Trump to either “support” China’s unification with Taiwan or “oppose” Taiwan independence.
The former is all but off the table.
So what then could the contours of an agreement look like?
Contours of a U.S. / China Agreement
Early contours of an agreement have already taken shape with the pause on escalated tariffs now extended into November and likely to be extended again. Rhetoric is also a key component, particularly from the Chinese perspective, and here President Trump can play to President Xi’s ego and the national pride of China.
Though the resumption of rare earth shipments this spring were viewed as a sign of a deal in the making, that was disrupted in early October by Commerce’s 50 percent rule (which extends export restrictions to a broader group of entities) and China’s newly-create export license regime. Should an agreement be reached on rare earths, expect President Trump’s threatened 100 percent tariffs on China (effective November 1) to be taken off the table. Secretary Bessent revealed on Sunday that such a deal has, in fact, been reached: China will delay its rare earth export regime by one year and the U.S. will rescind the November 1 tariffs.
The divestment of TikTok remains the most tangible agreement between the two to date. Should the deal be finalized and the control of the algorithm for the U.S. market be handed over to U.S. investors, this will demonstrate the ability of each side to find common ground.
A further move towards a Chinese consumption economy and away from an overcapacity directive will also serve both side’s goals and represents collaboration. What is unlikely to be agreed upon, however, is the Chinese wish to further invest in the U.S. economy. We do not expect an investment fund or relaxing of direct foreign investment rules to be included in a potential deal.
Perhaps the biggest “give” on the U.S. side would be an elimination or relaxing of the existing fentanyl tariffs. The Chinese have indicated that the U.S. had agreed to this demand over the weekend. Of course, metrics will be key and the U.S. will likely require the Chinese to demonstrate meaningful progress on this front (as well as anti-money laundering), tying milestones to reductions in the tariff rate.
Ultimately, each side’s individual negotiations with Brazil and India may tip the balance to one or the other going forward. China’s relationship with Brazil remains strong and it’s unclear whether President Trump was able to create a wedge in his meeting with President Luiz Inácio Lula da Silva at the ASEAN Summit in Malaysia, though Lula described the talks as “surprisingly good” and predicted a “definitive solution” to the ongoing trade disputes.
Which leaves India and which side is best able to court Prime Minister Narendra Modi and the massive market he represents. Modi did not attend the ASEAN Summit given Diwali but he and President Trump did speak by phone last Wednesday. India is already taking steps towards reducing its purchases of Russian oil. Should that trend accelerate, the China/Russia alliance could face renewed global economic pressure.
OUTLOOK/ANALYSIS. As we have been predicting, President Trump and President Xi are on track to meet in person at the APEC Summit this Thursday and sign a fairly large-scale agreement. Both countries have done substantial legwork in providing their two leaders with room to negotiate and announce an agreement before various deadlines set in on November 1 and later in the year.
We believe the most likely outcome of the meeting is a purchasing agreement coupled with a one-year delay of China’s rare earth licensing regime, a relaxing of the existing fentanyl tariffs, and a rollback of U.S. fees on Chinese shipping vessels. Such an agreement would result in a nullification of 100 percent tariffs on November 1 (and possibly the Section 301 investigation into the Phase One deal announced by USTR on Friday), a longer-term pause of the elevated reciprocal tariffs, and a commitment by both sides to avoid further escalations (e.g., software and aviation restrictions, banking sanctions, etc.).
Likely off the table: a change in U.S. policy towards Taiwan and revisiting Commerce’s 50 percent rule.
Ultimately, each side’s strength relies upon its ability to align the rest of the world with its global order. The state of each country’s economy will be important in this context. The U.S. is further along both historically and via the last year both with trade deals and sanctions. And while the CCP’s autocratic government allows it to move quickly on any front, President Trump does enjoy bipartisan support in Congress for taking a hardline approach (e.g., outbound investment, GAIN Act, BIOSECURE Act, Russian sanctions, etc.).
The two have even discussed the possibility of a “global peace” deal with China taking more ownership in ending the war between Russia and Ukraine, a clear goal of the U.S. and a sign that sanctions have created pressure. Despite media narratives of China having a stronger hand to play, we believe the U.S. comes to the negotiating table with as much leverage as the CCP if not more.
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