Xi flexes his muscles to turn back the clock on Trump

President Donald Trump and Chinese leader Xi Jinping agreed to pause tit-for-tat measures in the long-running US-China trade war during a 100-minute meeting this week. At a tactical level, it amounted to a ceasefire, allowing the world’s two largest economies to move forward. 

It also prepared the ground for Trump’s proposed visit to Beijing in April, where he can have a far more expansive set of conversations about economic ties and geopolitical issues. 

Yet even before the talks on the margins of the APEC summit in South Korea, Beijing had registered a clear win at a strategic level. Xi demonstrated that China possesses powerful cards that can inflict pain on the United States and its partners. 

During the meeting, he converted that leverage, extracting notable concessions from the United States. While Trump rated his first in-person meeting with Xi in six years a “12 out of 10,” the outcomes were far more modest than this would suggest. 

While a joint statement has not been released and observers have had to cobble together a picture by comparing Chinese comments with those of President Trump, it appears as though Washington agreed to lower tariffs on China by 10%.

American technology

The overall rate would now be 47%, according to Trump. In exchange, Beijing will cooperate on halting the export of precursor chemicals used in the production of fentanyl. 

Trump also agreed to pause for one year the “50% rule,” which would have placed export restrictions on thousands of subsidiaries of blacklisted Chinese entities. They were seen as circumventing export controls on chipmaking equipment and other American technology. 

In exchange, China pledged to delay implementing its export controls on rare-earth minerals by one year and to resume purchasing American soybeans at previous levels, to the tune of billions of dollars per year. 

Both sides agreed to pause increases in port fees on each other’s ships, while the US agreed to postpone its investigation into China’s shipbuilding and maritime industries. 

To summarize, Washington and Beijing reached a temporary truce but did not resolve any of the fundamental issues in the bilateral economic relationship. 

Trump did, however, signal his desire for a more far-reaching accord, mentioning potential Chinese investment in the United States, and noting that he anticipates reaching a trade deal with Xi “pretty soon.” 

It is no surprise that geopolitical issues took a back seat, given the urgency of addressing China’s rare-earth measures and Trump’s desire to secure Chinese soybean purchases, combined with the relatively short duration of the meeting. 

While there had been reports that Xi would press Trump to reduce support for Taiwan, the issue was not raised, according to the US president. The two leaders did, however, discuss Ukraine, with Trump stating that they could work together to resolve the conflict. 

But China, which has been providing critical support to Russia’s war machine and is the top buyer of Russian oil, is unlikely to put any meaningful pressure on Putin to pull out. 

Rare-earths stranglehold

Taking a step back from the details of the talks, one thing is clear: China has emerged from this latest trade war episode in a stronger position than it entered. 

Beijing has demonstrated that it can use its stranglehold on rare-earths to inflict significant damage on the American economy and that it is willing to do so. 

Xi certainly believes his decision to play the card was the correct one, securing a 10% cut in tariffs and a suspension of the “50% rule” without giving up anything meaningful in return. 

This weapon is set to remain potent for years to come given the difficulty of establishing new rare-earth mines and processing facilities. Xi can be expected to believe that the Trump administration will now think twice before reopening the trade war. 

China has also likely drawn the lesson that the best response to punitive US actions going forward is to hit back even harder and that Washington does not necessarily possess escalation dominance. 

Notwithstanding the broader implications of this latest cycle in the trade war, US-China relations may well settle in at this level for the next six months, as both sides prepare for Trump’s visit to Beijing. They will seek to avoid steps that would disrupt the trip. 

Should his visit take place, it will open up the opportunity for wider-ranging discussions and potentially far more consequential deals. 

They could include tariffs, export controls, Chinese access to advanced American technology, investment in both directions, Taiwan, Ukraine, and other geopolitical issues. 

Strategic level

Given his unpredictability, where Trump ultimately lands on any of these issues is anyone’s guess. At some point, though, his administration will have to move beyond the tactical to the strategic level.

Washington will have to define what it seeks to achieve in the US-China relationship and the tools it will use to accomplish those objectives.

David Sacks is a fellow for Asia studies at the Council on Foreign Relations.

This edited article was published by the Council on Foreign Relations under a Creative Commons license. Read the original here.

The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy of China Factor.