Why China holds the trump card in trade talks with the US

Business Times

15 hours ago

[SINGAPORE] The US and China have extended their trade truce to Nov 10, 2025, averting another round of sweeping tariff escalation. That means the existing tariff framework remains unchanged: The United States maintains a 30 per cent levy on Chinese imports, while China continues to impose a 10 per cent tariff on American goods.
The US tone has shifted markedly in recent months. In April, China was the only major economy to confront Washington's tariff policies, engaging in tit-for-tat retaliation that pushed levies above 100 per cent. By August, while the US imposed new tariffs on other trading partners, China received a temporary reprieve, with the tariff pause extended to allow more time for negotiations.
The most significant contrast is with India, which faces a renewed 50 per cent tariff over its purchases of Russian oil and weapons, an outcome that China has so far avoided, despite also sourcing oil from Russia. Why is US President Donald Trump taking a softer approach with Beijing?
Rare earths: China's biggest strategic leverage
China's dominance in rare earth materials remains a pivotal bargaining chip in the ongoing trade stand-off. The country is estimated to mine 60 to 70 per cent of the world's rare earths and refine roughly 90 per cent of them.
Following talks in Geneva, China eased some controls, raising rare earth shipments to the US from a mere 46 tonnes in May to 353 tonnes in June. Despite the increase, volumes remain well below historical averages. Any renewed escalation in trade tensions could see Beijing reinstate stricter export curbs, posing significant risks to US sectors that are reliant on rare earths, including defence, aerospace, automotive and electronics.
Rare earths are not China's only lever. Agricultural trade has also been sharply curtailed. Soybean imports from the US fell to US$2.5 billion in the first six months of 2025, a 51 per cent decline from US$5.1 billion in the same period last year.
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Purchases of corn, cotton and beef have also been scaled back. This strategy highlights China's weight as a major global consumer of commodities and signals its readiness to apply pressure in areas where US producers remain highly exposed.
Washington has also dialled back some of its own restrictions. The Trump administration reversed its earlier ban on Nvidia's H20 chips, approving shipments of both H20 and AMD's MI308 processors. The approvals came with a condition, namely an agreement for chipmakers to share 15 per cent of their China sales revenue, though Beijing has denied that this concession forms part of the trade accord.
While the latest extension buys both sides breathing space, the truce remains fragile. Several contentious issues are still on the table for the second phase of negotiations: US demands on fentanyl trafficking; concerns over Chinese imports of sanctioned Russian and Iranian oil; and efforts to narrow the US trade deficit, including calls for China to treble soybean purchases.
Beijing is pressing for a rollback of targeted technology restrictions, and protection for Chinese firms from future sanctions.
Given the complexity of bridging divergent objectives, progress in the negotiations is expected to remain slow, and it would not be surprising to see talks continue right up to the next deadline. Washington faces the delicate task of pursuing its strategic goals without jeopardising access to critical rare earth supplies. With Beijing having the upper hand in this area, the US is unlikely to impose sweeping new tariffs on China without careful consideration.
China set for stronger H2
With the immediate tariff threat postponed, China's economy is set to hold up better in the second half of 2025. The easing of trade pressure is providing vital support for exports, allowing manufacturers to capitalise on the fragile truce to ramp up shipments.
In July, exports grew 7.2 per cent year on year, the fastest pace since April. While shipments to the US continued to contract by 21.7 per cent, demand from other Asia-Pacific markets surged; exports to Taiwan rose 19.2 per cent, to Asean by 16 per cent, and to Australia by 14.8 per cent. The truce extension gives manufacturers more time to build inventories of key materials and capture additional orders before policy reversal.
Recognising that trade risks are far from eliminated, Beijing is maintaining a strong focus on domestic consumption. Retail sales rose 4.8 per cent year on year in the first seven months of 2025, and the 618 mid-year shopping festival saw e-commerce sales jump 15.2 per cent from a year earlier, reversing 2024's decline, according to retail data provider Syntun.
The government has earmarked 138 billion yuan (S$24.7 billion) in consumer subsidies for H2 2025, alongside increased support for the services sector through consumption-linked loans aimed at helping businesses upgrade infrastructure and expand hiring.
Subsidies have boosted discretionary spending, but appetite for big-ticket items such as housing remains subdued. New home sales among China's top 100 developers recorded double-digit declines in June and July. Yet early signs of stabilisation are emerging, with housing prices in major cities such as Shanghai rebounding and total inventory gradually declining.
A strong case for investment
While trade risks remain, Beijing's command of rare earths provides a crucial layer of negotiating leverage, ensuring that it remains well-positioned to navigate future tensions. With sweeping US tariffs temporarily on hold until November, China's growth outlook for 2025 has turned more constructive.
The economy is entering a new phase, pivoting towards targeted consumption incentives and pro-growth measures designed to revive private-sector confidence. The next leg of expansion will be anchored by more domestically driven, resilient technology sectors – areas less exposed to the ebb and flow of trade frictions – offering investors greater clarity on the market's medium-term trajectory.
For investors seeking portfolio diversification, China's combination of steady growth momentum, policy tailwinds and attractive valuations presents meaningful upside potential, making it a market worth keeping on the radar in 2025 and beyond.
The writer is a research analyst with the research and portfolio management team of FSMOne.com, the B2C division of iFast Financial, the Singapore subsidiary of iFast Corp