A new round of trade negotiations between the United States and China has officially commenced in London, aimed at preserving the fragile truce that was brokered last month. The announcement of these fresh talks followed a long-anticipated phone call between US President Donald Trump and Chinese leader Xi Jinping, which appeared to ease tensions that had escalated over the previous month due to a surprise agreement reached in Geneva.
In May, the two nations agreed to significantly roll back tariffs on each other’s goods for an initial period of 90 days, creating an initial atmosphere of optimism. However, this positivity was quickly overshadowed by two major sticking points: China’s control over essential rare earth minerals and its access to semiconductor technology originating from the US. The upcoming meeting in London is expected to focus heavily on these critical issues.
Beijing’s exports of rare earths and their related magnets are set to take center stage during the London discussions. According to a source familiar with the situation, the talks are indeed underway, as reported by both CNN and China’s official news agency, Xinhua. Experts believe that China is unlikely to relinquish its strategic grip over these essential minerals, which are crucial for a wide array of electronics, vehicles, and defense systems.
“China’s control over rare earth supply has become a calibrated yet assertive tool for strategic influence,” noted Robin Xing, Morgan Stanley’s chief China economist, in a research note. He emphasized that China’s near-monopoly on the supply chain means that rare earths will remain a significant bargaining chip in these trade negotiations.
Since the Geneva talks, President Trump has accused Beijing of effectively blocking the export of rare earths and has announced additional restrictions on chips while threatening to revoke the US visas of Chinese students. These actions have elicited a strong backlash from China, which perceives Washington’s decisions as a breach of trade commitments.
The focus will be on whether both sides can reach a consensus on these fundamental issues. Notable figures from the US side, including US Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, and Trade Representative Jamieson Greer, are set to meet with a Chinese delegation led by Vice Premier He Lifeng.
On Saturday, Beijing appeared to send conciliatory signals with a spokesperson from China’s Commerce Ministry indicating that it had “approved a certain number of compliant applications.” The spokesperson emphasized China’s willingness to enhance communication and dialogue regarding export controls to facilitate compliant trade.
Furthermore, Kevin Hassett, head of the National Economic Council at the White House, stated in an interview that the US side is looking to restore the flow of rare earth minerals, noting, “Those exports of critical minerals have been getting released at a rate that is higher than it was, but not as high as we believe we agreed to in Geneva.”
As tensions escalated in April, China instituted a new licensing regime on seven rare earth minerals and several magnets, requiring exporters to obtain approvals for each shipment and submit documentation verifying the intended end use. Following the trade truce negotiated in Geneva, the Trump administration anticipated that China would lift these restrictions. However, Beijing’s slow processing of approvals has led to significant frustration within the White House.
Rare earths are a group of 17 elements that, while more abundant than gold and found in several countries, are difficult, costly, and environmentally damaging to extract and process. China currently controls approximately 90% of global rare earth processing.
Experts suggest that Beijing may leverage its control over rare earths to negotiate a relaxation of US export controls that aim to limit China’s access to advanced semiconductor technologies.
As China grapples with the ongoing tariff war with the US, the economic ramifications are becoming increasingly apparent. Recent trade and price data indicate a challenging landscape for China’s export-reliant economy. The overall overseas shipments rose by merely 4.8% in May compared to the same month last year, a notable decrease from the 8.1% growth recorded in April and below the 5.0% growth estimate from a Reuters poll of economists.
Exports to the US suffered a dramatic decline of 34.5%, widening from a 21% drop in April. This downturn occurred despite the trade truce announced on May 12, which aimed to reduce American tariffs on Chinese goods from 145% to 30%.
Still, customs spokesperson Lü Daliang highlighted China's economic resilience, asserting that the country’s goods trade has shown “resilience in the face of external challenges.” However, deflationary pressures continue to loom large over the world’s second-largest economy, with the Consumer Price Index (CPI) dropping 0.1% year-on-year in May. The Producer Price Index (PPI) also worsened, reflecting the sharpest year-on-year contraction in 22 months.
As the US-China trade negotiations proceed in London, all eyes will be on the outcomes and whether both nations can navigate their complex relationship to achieve a sustainable and mutually beneficial resolution.
