The global politics of trade with China: Where do we stand right now?
The last couple of weeks have seen a flurry of political activities in the China space. We have seen the escalation and de-escalation of a trade war and divergent interpretations of what and was not part of the agreement between the US and China in Geneva. Considering the rollercoaster-like up and down of the last few weeks, it is time to take stock of where we stand right now and what businesses should plan for in the future.
After Donald Trump’s escalation of global trade relations on what he called “liberation day”, the agreement on what was dubbed a “truce” between China and the US came as a surprise for many observers. It did initially provide a relief for many businesses engaged in both the US and China and dependent on functioning global supply chains. However, we should not be complacent about this agreement and not expect too much from it.
As a starter, the joint statement of the US and China is short and lacking details. The only specific aspect is the commitment to pause mutual tariffs for a period of 90 days. Already the establishment of a “mechanism to continue discussions about economic and trade relations” is vague and still has to deliver concrete results. This is even more the case for the Chinese promise to “adopt all necessary administrative measures to suspend or remove the non-tariff countermeasures taken against the United States since April 2, 2025”. There was the hope and the assumption that this would include lifting the export ban of rare earths to the US. While there was some evidence that China has granted a few export licenses for rare earths, it does not look like the overall export control regime for rare earths will be removed. On the contrary, China is furthering the implementation of full supply chain controls over the export of rare earths and critical minerals in order to prevent the unauthorised export of these commodities.
In addition to disagreements on export controls for rare earths, there have also been disagreements on discussions about export controls for chips. The US side had originally issued a guidance that the use of Huawei AI chips anywhere in the world could breach US export control regulations. The Chinese side perceives this as a de facto export ban for Chinese Huawei-made chips and is getting increasingly annoyed about this. In response to this, the Chinese government threatened that any entity participating in implementing such an export ban would be subject to legal measures in China under the anti-sanctions law. The formulation “anywhere in the world” in the US statement was later retracted, but China claims that there had been an agreement on chip exports in Geneva as well and this was breached by US measures. We have no evidence on whether this agreement exists, but the significant disagreements on what was agreed upon in Geneva point to deep distrust between both sides. There is no indication of this issue to be resolved anytime soon.
In the meantime, the Chinese government is engaging in a multitude of measures domestically to further strengthen the Chinese economy. Last week, the Chinese premier Li Qiang addressed a work conference on strengthening domestic circulation in China. He emphasised that domestic circulation (i.e. domestic growth drivers and production for the domestic market) are the “unique advantage of the economies of great powers” (for an English-language read-out of the work conference see here). Additionally, both Xi Jinping and Chinese vice-premier Ding Xuexiang went on separate inspection tours during the last week and a half, in Henan and Hubei respectively (for an English-language read-out of Xi’s inspection tour see here). Inspection tours serve Party leaders to gain a better understanding of specific issues in the country and provide indications for policy directions and priorities. Xi re-emphasised the importance of developing high-tech capabilities in China and Ding spoke about the importance of fostering innovation.
In addition to these policy statements and the tightening of controls over rare earths supply chains, the Chinese government also announced specific measures to further support Chinese exporters in a potential trade war and provide better financing options for small enterprises. Additionally, and probably most relevant for the global tech competition, the People’s Bank of China and multiple government entities published an announcement to further accelerate the development of a financing system for “high technological self-reliance and self-strengthening”. Finally, the Private Sector Promotion Law in China came into effect this week as well. All of these measure and policy statements coming from China clearly indicate that China is further committed to strengthen its independence in crucial high-tech areas but also more generally in generating economic growth.
Where does all of this leave businesses now? The initial relief of business actors after the Geneva agreement should not be relied upon. Although the official rhetoric is different, China is clearly preparing for the eventuality of a further decoupling from the US. The publicly known terms of the Geneva agreement are too vague and the disagreements that have already emerged over it indicate that it might be not actually be worth a lot when it comes to strategic planning. While the tariffs are paused for now (and US president Trump might keep continuously extending the agreement like he is doing with the TikTok ban), it looks like everything else including export controls for chips, rare earths and the regulation of AI are still up for grabs.
Additionally, none of the underlying issues in the US-China conflict have been tackled so far and it is unlikely that they will be solved anytime soon. The Trump administration believes that the China (like almost every other country in the world) is treating the US unfairly in trade. This is probably still the easiest problem to solve in that trade agreements have been concluded over this issue in the past (e.g. the US-Britain trade agreement recently or also the Phase I deal that Trump included with China in his first term).
The bigger issues go deeper, though. The US considers China a threat to its national security (this was already the case before Trump). This is particularly reflected in control over resources (especially critical minerals) and Chinese-made products that can at least theoretically be able to collect data for the Chinese government. Examples of this abound. China, on the contrary, believes that all trade measures and export controls that the US implements are aimed at preventing China’s rise and development. There is absolutely no indication that these issues will be solved in the near- to mid-term future. For businesses, this means that there is some negotiation space when it comes to tariffs but none on export controls and China’s attempt to increase economic independence and self-sufficiency. It also means that China will increasingly direct its efforts for trade partnerships at other countries apart from the US. I have discussed China’s international charm offensive in this newsletter as well as elsewhere before. For both businesses and governments, this means that it is not enough to simply look at China and the US. They should also think about their strategies in other markets and towards other governments.