Trade Truce: USA and China Announce Basic Agreement
Tension Easing: U.S.A. and China Strike Fundamental Compact - Trade accord: In principle, the United States and China have settled on a deal.
Things are looking up! The particulars of the accord weren't initially disclosed by representatives from Beijing and Washington. financier Howard Lutnick expressed optimism that troubles related to rare earths "will be sorted via the implementation of this general framework." China, a major player in the trade of these crucial materials, had imposed export controls during the trade dispute with U.S. President Donald Trump.
In contrast, China envisions USA lifting export controls on high-performance computer chips and other technologies. The main objective of the negotiations in London was to solidify the preliminary tariff reductions that were agreed upon provisionally in Geneva the previous month.
Ever since Trump took office in January, the trade dispute between the two biggest economies in the world has intensified. China countered Trump's harsh trade policies with its own tariffs, which Trump then increased. Eventually, Chinese exports to the USA were subject to a punitive tariff rate of 145 percent, while a 125 percent tariff loomed in the opposite direction.
In mid-May, the two countries agreed in Geneva to significantly reduce tariffs for an initial 90 days to facilitate negotiations. "We're moving as quickly as we can," said US Trade Representative Jamieson Greer, who was also involved in the London talks. "We're excited to work with the Chinese."
Chinese Trade Representative Li praised the "professional, reasoned, comprehensive, and open" discussions with US representatives. Li expressed hope that the advancements made in London would help strengthen trust on both sides.
Trump had previously expressed doubts about the possibility of a mutually beneficial negotiation, having accused the leadership in Peking of not adhering to the Geneva agreement. Last week, he had a first phone call with Chinese President Xi Jinping since his second term began, at which point the US President expressed a more positive outlook.
The impression that an agreement has been reached in London has brought relief to the markets, with stock prices surging particularly in Hong Kong and Shanghai. However, analysts cautioned that although an agreement has been reached, the specifics of the deal—particularly concerning rare earths and high-performance computer chips—are yet to be finalized.
The effects of the trade war are already apparent: According to official statistics from Peking, Chinese exports to the USA decreased by 12.7 percent in May compared to April. Meanwhile, the Chinese government is working towards normalizing relations with Washington, even as it initiates talks with its other partners to form a united front against the USA.
### Insights:
Following the high-level negotiations in London in June 2025, the United States and China reached a basic trade agreement framework restoring a truce after weeks of tension over tariffs and export controls. The key details regarding rare earths, high-performance computer chips, and tariff reductions are as follows:
- Removal of Export Restrictions: China agreed to remove restrictions on rare earth exports to the USA, a crucial move as China currently dominates over 70% of global rare earth mining and nearly 90% of processing.
- Supply Commitment: China pledged to supply “full magnets” and any necessary rare earths upfront, ensuring American industries—especially automotive, electronics, and defense—can once again access these essential materials.
- No Direct Swap with Tech: U.S. officials clarified there is no direct trade-off, or “quid pro quo,” between rare earths and high-performance computer chips or AI technology.
- No Specific Agreement on Chips: While the agreement addresses rare earths and trade restrictions, it does not include a detailed agreement on high-performance computer chips.
- Export Controls Eased: The U.S. indicated plans to ease some of its recent export restrictions on certain technology goods.
- Temporary Tariff Truce: The agreement builds on a previous Geneva consensus, which resulted in a 90-day suspension of steep tariffs between the two countries.
- New Tariff Framework: The deal sets a new tariff structure on Chinese imports into the U.S. at a composite rate of 55%, which incorporates:
- 10% baseline tariff
- 20% punitive tariff targeting fentanyl-related goods and other sectors
- 25% existing tariffs from Trump’s prior terms
- China’s Tariffs: China’s tariffs on U.S. goods are reportedly set at 10% under the new framework
- Tariff Reductions: Although the agreement maintains higher tariffs than before the trade war, it prevents further escalation and reinstates the pause on steep tariffs that had exceeded 100% in some cases.
Tariff Reductions and Structure
High-Performance Computer Chips
Rare Earths
- The employment policies of EC countries might be impacted by the trade agreement between the USA and China, especially regarding industries such as automotive, electronics, and defense, as they heavily rely on rare earths, a crucial material currently dominated by China.
- Businesses and financiers are closely watching the specifics of the agreement between the USA and China, particularly with regards to finance, as the easing of export controls on high-performance computer chips could have significant implications for the technology industry.
- This trade agreement between the USA and China also has political implications, as it comes amidst broader negotiations and alliances that China is forming with other countries as part of its effort to balance its growing economic relationship with the USA.
