The clock is ticking on a crucial 90-day tariff truce between the US and China, leaving the future of their already strained trade relationship hanging in the balance. While Beijing expressed optimism in July following a meeting in Stockholm, suggesting a 90-day extension was on the cards, the US side has remained notably silent, leaving the ball squarely in President Trump’s court.
This uncertainty is particularly concerning given the significant tariffs currently in place. Chinese goods bound for the US face a 20% tariff related to fentanyl concerns, plus a 10% baseline tariff, and an additional 25% on certain goods imposed during Trump’s first term. Conversely, American goods entering China face tariffs exceeding 32.6%, a significant barrier to trade. The current truce, agreed upon in May, reduced these prohibitive tariffs, offering a temporary reprieve and a window for negotiation. But with the deadline looming, the lack of clear communication is fueling anxieties about a potential escalation of tensions.
Despite the truce, trade between the two economic giants has already suffered considerably. China’s exports to the US have fallen for four consecutive months, with July showing a 21.7% year-on-year decrease. This decline is significant, highlighting the substantial impact of the ongoing trade disputes. Analysts suggest a potential trade deal could involve China increasing purchases of US goods, particularly in energy, agriculture, and potentially semiconductors, depending on US concessions.
Adding another layer of complexity are the ongoing tensions regarding semiconductor export controls. While Nvidia has received permission to resume sales of its H20 chip to China, reversing earlier restrictions, substantial easing of export controls is unlikely. This issue highlights the strategic competition between the two nations in the technology sector, with national security concerns playing a significant role in the ongoing negotiations. The situation is further complicated by reports that US companies are required to pay a percentage of their revenue from chip sales to China to the US government to secure export licenses – a development described by some experts as “entering a new and dangerous world”.
China’s dominance in rare earth minerals adds another dimension to the bargaining power dynamics. While Beijing relaxed its export ban on these critical materials to the US in June, the extent of its commitment to expedite shipments remains unclear. However, the significant increase in rare-earth magnet exports to the US in June suggests that China is not unwilling to use this leverage in the ongoing negotiations.
Further complicating matters is President Trump’s threat of imposing additional tariffs on China for its purchases of Russian oil, mirroring similar actions taken against India. This potential escalation adds yet another layer of uncertainty to the already complex situation. A recent phone call between Xi Jinping and Vladimir Putin, occurring during Xi’s annual summer vacation, adds to the intrigue, leaving observers wondering about the potential impact of this conversation on the ongoing US-China negotiations. The upcoming months will be critical, particularly with the possibility of a Trump-Xi summit in Beijing on the horizon. While such a summit may signal a more stable relationship, it is unlikely to herald a period of increased friendliness, with both sides seemingly moving towards greater decoupling in the long term.
