Trump Softens Tone on China to Secure Xi Summit, Trade Deal

Yahoo

4 days ago

(Bloomberg) --
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President Donald Trump has dialed down his confrontational tone with China in an effort to secure a summit with counterpart Xi Jinping and a trade deal with the world's second-largest economy, people familiar with internal deliberations said.
Six months into his second term, Trump has softened his harsh campaign rhetoric that focused on the US's massive trade deficit with China and resulting job losses. The warmer posture contrasts with his threats against other trading partners to ravage their economies with crushing tariffs.
Trump is now focused on cutting purchase deals with Beijing — similar to one he forged during his first term — and celebrating quick wins instead of addressing root causes of the trade imbalances. China posted a record trade surplus in the first half of the year amid booming exports.
On Tuesday, the US president said he would be fighting China 'in a very friendly fashion.'
In meetings with his staff, Trump is often the least hawkish voice in the room, some of the people said.
Administration officials stressed that Trump has always liked Xi personally and pointed to moments in his first term when he nevertheless imposed sweeping restrictions on Huawei Technologies Co. and tariffs on the majority of Chinese exports.
Trump's fluid playbook and his departure from promised hawkish policies have worried policymakers inside his administration as well as outside advisers, the people said. This week only exacerbated concerns that previous US red lines with China are now negotiable.
Allowing Nvidia Corp. to sell its China-focused, less-advanced H20 chip once again — something multiple senior officials had said was not on the table — reversed the administration's own stated approach of keeping the most critical American technologies out of Beijing's hands.
Treasury Secretary Scott Bessent last month cited H20 controls as evidence of the administration's toughness on China when pressed by senators who worried the US could trade advanced semiconductors for the Asian country's rare-earth minerals.
While the US will still require approval for such exports — a restriction former President Joe Biden declined to impose — some Trump officials have privately objected to granting licenses they say will only embolden China's tech champions, the people said.
Others have argued successfully that allowing Nvidia to compete with Huawei on its own turf is essential to winning the AI race with China. That view, championed by Nvidia Chief Executive Officer Jensen Huang, has gained traction inside the administration, people familiar with the matter said.
'Productive' Talks
Trump has the final say in all trade decisions, an administration spokesman said. The president has 'consistently fought to level the playing field for American workers and industries, and the Administration continues to have productive discussions with all of our trading partners,' White House spokesman Kush Desai said.
In a further effort to ease tensions, US officials are preparing to delay an Aug. 12 deadline when US tariffs on China are set to snap back to 145% after the expiration of a 90-day truce. Bessent signaled in a Bloomberg Television interview this week that the deadline was flexible.
One person familiar with the plans said the tariff truce could be extended another three months. This comes as Trump is rolling out duties for other countries — including key allies — and threatening more actions on industries including pharmaceuticals and semiconductors.
Last week, US Secretary of State Marco Rubio said a summit between Trump and Xi is likely. Rubio, once among the staunchest China hawks in the Senate, said he had a 'very constructive and positive' sit-down Friday with Chinese Foreign Minister Wang Yi.
'Big Steps'
On Wednesday, Trump praised China's moves to tighten controls on chemicals used to make fentanyl, part of steps taken after the US president imposed a 20% tariff on the nation for facilitating flows of the drug.
'China has been helping out,' Trump told reporters. 'I mean, it's been, it's been a terrible situation for many years with fentanyl. But since I came here, we're talking to them, and they're making big steps.'
Some administration officials, meanwhile, are focused on getting China to agree to purchase some volume of to-be-determined US goods and services, people familiar with the matter said. That could satisfy Trump's concerns about the trade deficit but won't do much to close the yawning trade gap over the longer term.
Trump's gentler handling of China is causing a rift among his advisers. Some members of his trade team want to hold a tough line against Beijing and have promised privately that export controls would never be part of trade discussions, people familiar with their deliberations said.
Yet during last month's trade talks in London, Commerce Secretary Howard Lutnick openly said that recent export controls — officially justified on the basis of national security — were also designed to 'annoy' Beijing. And this week, he — along with Bessent and White House AI and Crypto Czar David Sacks — said plainly that allowing some less-advanced Nvidia chip sales to China is indeed part of ongoing trade negotiations.
This development is raising questions about how far Trump would go in negotiating away national security actions if the Chinese demanded it. Some hawkish advisers fear that a further rollback of chip controls is now inevitable, people familiar with the matter said. Others have maintained that allowing sales of H20s — which are far less capable than Nvidia's best models — is a far cry from exporting that leading-edge hardware, which they say is not up for discussion.
'You want to sell the Chinese enough that their developers get addicted to the American technology stack,' Lutnick said Tuesday on CNBC.
Closely watching the situation are allies and companies across Europe and Asia whose help the US wants to squeeze China's tech sector. Government and industry officials in those regions have gotten the message that Washington's strategy is subject to change, people familiar with the matter said.
A half-dozen tech industry officials who've interacted with Trump's team on China said they often leave meetings wanting details only to see core goals evolve in later discussions.
Surprise Reversals
In many cases, those in charge of China tech policy have made decisions without involving offices that historically have played a role. Restrictions imposed in May on sales of chip design software to China — which have since been reversed — were part of a raft of Commerce Department measures that came as a surprise to many within the administration, Bloomberg has reported.
The decision on H20 chips was also tightly held, people familiar with the matter said. Other actions that have been under consideration for months — including sanctions on Chinese chip giants and an effort to slap curbs on Chinese tech subsidiaries — have been delayed as officials pursue a trade deal.
But Trump is also known for reversing course on China often and sometimes quickly after taking a position — as was the case when he fulfilled Xi's personal request to lift sanctions on Chinese telecom giant ZTE Corp. in 2018.
He's also susceptible to criticism of his approach, which might indicate Trump could change his tone yet again.
'President Trump is set on a China deal, but it may be short-lived,' said Derek Scissors, a China expert at the American Enterprise Institute. 'The US trade deficit is well higher to date this year and the new budget will boost demand for imports in the fourth quarter. If a record 2025 trade deficit gets reported, all bets are off, including with China.'
Beijing has made no secret it believes it has the upper hand. In London, US officials were taken aback by their Chinese counterparts' gloating over the position they find themselves in, people familiar with the exchange said.
The Asian country's leverage stems from its grip on rare earth magnets and its ability to weaponize America's dependence on those supplies. China now requires companies to hand over sensitive data and reapply for rare-earth export licenses every six months.
--With assistance from Jordan Fabian and Catherine Lucey.
(Updates with Trump comments on fentanyl)
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