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| (Cartoon: Luo Jie / China-US Focus) |
Below all the headlines of the China-U.S. trade and technology war, a very gradual, almost imperceptible improvement in relations can be discerned. What was professed to be the irrevocable and structural decline in China-U.S. relations seems to have found a bottom. Admittedly, it is a low bottom, but the sheer power of each economy's productive and technological capacities seems to have nudged both sides to step away from the brink of mutual economic destruction towards an edgy truce.
Perhaps hope is misplaced given how unpredictable global relations have become. Nonetheless, the situation we find ourselves in could evolve into a détente of sorts in the China-U.S. trade war. Détente, derived from the French word for “relaxation,” implies mutual restraint that leads to a ratchetting down of tense inter-state relations. The concept has most commonly been associated with the Cold War, especially the late 1960s to the late 1970s, as relations between the United States and the Soviet Union improved.
At this point, both sides have successfully weaponized a variety of trade and technology capacities they possess. It turns out that China and the United States are more evenly matched in this respect than was generally appreciated, particularly in Washington. When U.S. President Donald Trump announced devastating tariffs on the world during his “Liberation Day” declaration on April 2, 2025, most countries rushed to commence negotiations or otherwise placate Trump. Not China. Beijing rapidly retaliated, leading to a crazy ratcheting up of tariff rates that, if sustained, would have amounted to economic destruction on a massive scale.
Fortunately, both sides swiftly sought to de-escalate the trade war, leading to the Geneva agreement in early May 2025 that lowered tariffs to more reasonable, yet still high levels. The calm did not last, and frictions in bilateral relations quickly spiraled upward again. Just during the last week of May 2025, the Trump administration announced a slew of punitive actions directed against Beijing in retaliation for China's foot dragging on issuing heavy rare earth export licenses to U.S. end users.
The negotiation teams, led by each side's top economic officials, thus met again in London during June 9-10, 2025. These talks led to a more comprehensive agreement going beyond tariffs, securing a temporary truce. Most importantly, the two sides agreed to continue talking with the focus expanding to include more fundamental issues. For the Chinese side, these issues include the strict technology export licensing regime the United States has put in place for chips and chip making equipment. For the American side, it encompasses broader discussions on how to address structural economic differences and investment relations.
And so, talks continued in Stockholm during late July and, again, in Madrid during September. The last instance produced an agreement on the transfer of TikTok to American ownership that nonetheless was seen as favorable to Beijing. Most recently, U.S. Treasury Secretary Scott Bessent predicted a “big breakthrough” in trade negotiations with China. This comes as Chinese buyers have not booked any American soybean crops from the 2025 fall harvest, instead opting for Latin American exports. Given the large U.S. harvest this year, the absence of Chinese buyers has put many communities across the midwestern farm belt under enormous economic pressure. Suddenly, their largest overseas customer vanished.
As both sides find each other at loggerheads with new points of leverage emerging, the atmospherics have improved somewhat. U.S. President Donald Trump seems eager to meet President Xi Jinping in-person at the end of October or early November. So far, a “pull-aside” meeting during the main APEC events in Gyeongju, South Korea, has been floated.
Nevertheless, relations remain fragile. The soybean story illustrates how new points of disagreement and contention can always flash up. Most importantly, the knotty and protracted battle of chips versus rare earths promises to endure. Over the past months there has been a substantial increase in the export of heavy rare earth elements and magnets to the United States, especially for civilian manufacturers such as car plants. Nonetheless, supplies remain heavily restricted. Most manufacturers want to keep the situation quiet for obvious reasons, but there are reports of disruptions. One example is the F-35's most ambitious upgrade program—Block 4—which faces major delays and rising costs. This is in part due to dependence on heavy rare earth elements for critical components.
Beijing thus continues to hold enormous leverage over U.S. defense manufacturing. This is even as U.S. efforts to establish a domestic mine-to-magnet supply chain have accelerated. In fact, American dependence on China's refining capacity for heavy rare earths is likely to persist for years to come. So, while Washington has attempted to put the screws on efforts by China to accelerate and upgrade its chip making industry, Beijing has now found ways to fight back. No wonder reports are emerging that Chinese negotiators are demanding a lowering of the often-55 percent tariff rates charged Chinese imports in return for the resumption of American soybean purchases.
And in what could amount to the most important twist in this story, Jensen Huang, the founder and CEO of Nvidia, recently argued that China is incredibly close to matching American AI chip technology, stating that China is only "nanoseconds behind" the United States. Jensen urged U.S. policy makers to allow American chip exports to China, a move that would help his own company. But his logic is self-evident. To stay ahead, the United States must compete head-on with China's innovative and fast-moving tech sector. It cannot shoot itself in the foot by barring exports just as Chinese tech entrepreneurs catch up and take on the world.
The seesaw of threats, retaliation, talks, and finally a truce over the past six months illustrates one thing: Trump's brinkmanship has shown how evenly matched China and the United States are in terms of their ability to fight this trade and technology war. American bullying at the outset has resulted in an edgy truce. Now this truce has the potential to become a longer-lasting, yet tricky détente.
With the weaponization of an ever-broader array of economic sectors, technologies, and producers, no one stands to win. Although this is perhaps a strong term, “mutually assured economic destruction” has been realized and recognized by both sides. Beijing policy-makers clearly feel that they have a strong hand, and maybe even that time is on their side as Chinese technology catches up and, in some areas, surpasses American tech. American policy-makers, on the other hand, still feel they have the upper hand as the AI boom continues and China is willing to make deals.
Hopefully, this dynamic can persist, creating positive feedback loops. Each side steps away from the brink of economic chaos, lowers tariff rates here, opens markets there, all the while striking big investment and purchase deals that please Trump. This is a rosy scenario that could easily be upended by countless possibilities. Nevertheless, the creation of a dynamic of economic deterrence that enables a tricky détente to take hold should not be underestimated.
