What the Trump-Xi meeting can and can’t solve

“IHAVE A lot of respect for President Xi,” Donald Trump declared in recent days. “He likes me a lot, I believe, and respects me.” America’s leader is betting on charm and magnetism to win the day when he sees his Chinese counterpart on October 30th in South Korea. It will be the most important political meeting of the year; the men haven’t sat down together since 2019. The markets expect sweetness and light: America’s S&P 500 index of blue-chip stocks closed at a record high on October 27th. Gold has dropped below $4,000 per troy ounce. But any deal announced is very probably a truce—not a treaty.

The past month was rough for the superpowers. On October 9th China imposed sweeping new controls on exports of rare earths, elements essential in manufacturing everything from consumer electronics to military equipment. In response, Mr Trump threatened to slap an additional 100% tariff on Chinese imports from November 1st (on top of the hefty levies already in place). Add to the mix corporate blacklisting, port fees and a spat over soyabeans. That the meeting is happening at all is testament to the weekend work of Scott Bessent, America’s treasury secretary, and He Lifeng, China’s vice-premier, in Malaysia.

There will be three levels of difficulty in the negotiations. First consider the easiest. Tariffs are an obvious area in which to make progress. They are squeezing trade between the two countries (China’s exports to America fell by 27% year-on-year in September). The threat of an extra 100% tariff is “effectively” no longer on the table, according to Mr Bessent. A separate tranche of tariffs that was due to come into force on November 10th will probably be postponed. And a further 20% tariff on Chinese goods intended to punish the country for its companies’ role in the fentanyl trade may even be removed (in July Mr Trump said China is making “big steps” in controlling the flow of the drug). Even with all this nicety, an effective tariff rate of 20-30% on Chinese goods would still be left, according to Zhaopeng Xing of ANZ, an Australian bank.

In return for some tariff relief, China will probably commit to buying lots of American soyabeans (having spent the last few years shifting its main source of supply to Brazil). Last year soyabeans were the single largest American export to China and worth some $12.6bn for the midwestern farmers—a Trump-friendly lot—who grow them. They are used to boost protein in animal feed. But this year China has avoided buying American ones. Agreeing to do so now will be a cheap concession for Mr Xi; China will need American soyabeans late in the year anyway, once supplies from elsewhere are exhausted.

Other winning areas might include port fees. The two countries could agree to roll back the extra port fees they have imposed on each other’s cargo ships in recent months. China could also give its blessing to a smooth transfer of the American version of TikTok, a Chinese-controlled short-video platform, to American owners. Both matters would be easy offers for Mr Xi to make to Mr Trump, and easy political wins at home for him.

A second, much more difficult level of negotiations could concern new controls and limits on the bilateral flow of goods, intellectual property and capital. Rare earths are an example of this broad issue. Mr Bessent claims China will postpone its rare earths export-control regime for a year “while they re-examine it”. Chinese officials have not yet commented. But given their dominance of the rare-earth market they are hardly likely to drop their new regime altogether. In return for delaying its implementation, China would probably expect America to loosen its own export controls too, says Chen Long, of Plenum, a research firm. America has long blocked the sale of advanced semiconductors to China. But any deal effectively swapping access to rare earths for access to the whizziest chips would be a win for Mr Xi.

The third and hardest level for dealmaking concerns geopolitics. Mr Trump wants Russia to end the war in Ukraine, and it’s possible that China might be able to help. Mr Xi, for his part, wants to push Mr Trump to change his stance on Taiwan, perhaps by saying he “opposes” independence for the self-ruled island (at the moment America’s policy is merely that it does not support independence). Mr Xi, at least, has given no sign he wants Vladimir Putin to seek peace. Mr Trump’s team says America will not shift its stance on Taiwan for a trade deal. That may be little comfort to America’s Asian allies given the president’s unpredictability.

If a deal is reached that encompasses the easiest areas for agreement, it may pave the way for Mr Trump to visit China early next year. Only then might some of the tougher bits get tackled. A pause in hostilities may suit the sides, anyway. It could give China time to find staff to administer its new rare-earths regime properly, for example. And America might ready other ways to hit back at China—it could look at restricting the flow of aeroplane parts or advanced software to design chips.

Precedent suggests that any sort of bargain made between the two mutually suspicious superpowers may not last long. Various truces have unravelled this year. And the last big deal the two leaders did together was a phase-one trade agreement in 2020. In recent days the Office of the United States Trade Representative announced an investigation into China’s “apparent failure” to comply with it. That all augurs badly for a pact that encompasses the most difficult issues facing America and China. 

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