How the fragile US-China trade truce is unraveling – DW – 06/05/2025

DW

3 days ago

Donald Trump has accused Beijing of breaching last month's deal to cut steep tit-for-tat tariffs. Could a much-awaited call between the US and Chinese presidents break the deadlock?
The world exhaled when the United States and China unveiled a 90-day tariff truce last month, pausing the escalating trade war between the globe's largest and second-largest economies, which had rattled businesses and investors.
The deal, after tense negotiations in Geneva, slashed US tariffs on Chinese imports from 145% to 30% and China's retaliatory levies on US goods from 125% to 10%.
Just three weeks later, however, US President Donald Trump reignited tensions, saying that China had "totally violated" the truce deal, without providing further details. Trump later said his Chinese counterpart, Xi Jinping, was "extremely hard to make a deal with."
China swiftly countered, asserting that Washington had imposed "discriminatory and restrictive measures" since the Geneva talks, pointing to US curbs on chip design software and warnings about artificial intelligence (AI) chips produced by Chinese tech giant Huawei.
Deal stalled over US access to rare earths
US policymakers have voiced frustration at China's stalling on export license approvals for rare earths and other elements needed in the high-tech, defense, and clean energy sectors.
China, which dominates global rare-earth production with over two-thirds of supply and 90% of processing capacity, has imposed export restrictions on several key minerals. The US, lacking domestic rare-earth processing capacity, remains highly vulnerable to Beijing's restrictions.
Confusion remains over what was agreed on rare earths in Geneva. In an interview with news agency Bloomberg on Wednesday, Cory Combs, head of critical-mineral supply chain research at Trivium China, said Washington believed that Beijing would "completely remove the requirement of an approval [for export licenses]," which Beijing said it did not agree to.
Michael Hart, AmCham China president, told the Financial Times on Monday that China has now stepped up approvals to ship rare earths to several US carmakers, noting how "only a handful" of officials are handling thousands of applications.
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Penny Naas, a distinguished fellow at the US-based German Marshal Fund think tank, thinks the rare earths are "China's biggest card," telling DW that "a key part of the negotiation will be when and how they liberalize the trade in those products."
Naas expressed little surprise at the renewed war of words between Washington and Beijing, noting that, "You often see these highs and lows and even near-death experiences before deals are reached."
But with the clock ticking until August 12 — when the 90-day pause expires — and both sides accusing the other of violations, the prospects for a lasting ceasefire and a long-term deal remain uncertain.
Trump uses tariffs for maximum leverage
Beyond securing access to China's rare minerals, the US seeks to cut its trade deficit with China, which was $295 billion (€259 billion) in 2024 — up nearly 6% on the previous year.
The Trump administration has urged Beijing to boost purchases of American goods and eliminate non-tariff barriers, such as anti-monopoly probes targeting US companies and the designation of certain American firms as "unreliable entities."
Washington has also demanded further economic reforms and an end to the manipulation of the Chinese yuan, which is kept artificially low to help boost exports. In April, when Trump announced his unprecedented tariffs, the yuan hit a 20-month low of 7.2038 against the dollar and is expected to weaken further if the higher US levies are reinstated.
Trump has also pressed China to strengthen efforts to curb illegal immigration and halt exports of precursor chemicals used to produce fentanyl, an opioid fueling a public health crisis in the US.
Will Trump-Xi call break the impasse?
With US Treasury Secretary Scott Bessent acknowledging last week that negotiations have "stalled," all eyes are on whether a call between Trump and Xi will break the tariff deadlock. The US president has said for months that the two leaders were due to speak and even spoke of traveling to China for talks, without a public response from Beijing.
US President Donald Trump said his Chinese counterpart is 'extremely hard' to make a deal with Image: Francis Chung/Imago
The White House said Monday that a Trump-Xi call was "likely" to take place this week, a development that Antonio Fatas, an economics professor at INSEAD business school, said the US president would see as "his victory."
"Trump's typically the one who calls people and tells them what to do," Fatas told DW. "But with a powerful player like China, that's not going to work. I wouldn't be surprised if China postpones the call."
Although Trump will get the chance to talk to other world leaders on the sidelines of the upcoming G7 and NATO summits, the US and Chinese presidents aren't likely to meet in person until later in the year, signaling a protracted tussle that could last several more months.
Tariff court battle plays into China's hands
Another boon to China could be the lack of clarity over Trump's unprecedented tariffs after a US trade court last week ruled they were illegal. Although a higher court temporarily reinstated the levies, the White House has threatened to go to the Supreme Court for the ultimate ruling.
"There may be a hesitancy to go all in on an offer at this moment when there's a large lack of clarity about the US position," the German Marshall Fund's Naas told DW.
INSEAD's Fatas, meanwhile, predicted that the truce would be extended beyond the 90 days, adding: "Until I see the possibility of a real compromise on both sides, I'll remain very cautious and uncertainty remains incredibly high."
Tariffs distract from US-China tech battle
Both the Trump and Biden administrations have prioritized maintaining the US's technological edge over China, but there are growing concerns that the tariff policies are diverting resources and focus from US firms' ability to achieve this goal.
Investor nervousness that the tariffs could cause a US recession has intensified.
The tariffs have already increased costs and strained budgets for American tech firms, limiting their capacity to invest in research and development (R&D) at a critical time. With tariffs consuming significant attention among US policymakers, initiatives to bolster domestic innovation risk being sidelined.
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Beijing, meanwhile, has doubled down on the need to reduce its dependence on US technology. Through substantial state subsidies, China has advanced its capabilities in AI, quantum computing, advanced chip production, and 6G telecommunications, narrowing the technological gap with the US.
Naas thinks that China has now caught up on "most of the technological advantage the US thought it had" and that US companies say they're "falling behind while spending all their time on reorienting their supply chains."
"Is that the best use of their time when we're in hand-to-hand combat on the future of technology?" she asks.
Edited by: Uwe Hessler