In Brief
- US President Donald Trump described his meeting with China’s President Xi Jinping as amazing, rating it a 12 out of 10.
- Key agreements reached include immediate purchases of soybeans by China, efforts to curb fentanyl, and reduced tariffs on the drug.
- Discussions also touched upon China’s potential chips procurement and the resolution of rare earth supply issues, with tariffs on China reduced from 57% to 47%.
- The market reaction was muted, with the US Dollar Index dropping and AUD/USD consolidating gains.
- A new era of US-China trade tensions is anticipated with Trump’s return to the presidency, marked by proposed high tariffs on Chinese goods.
Trump’s Post-Meeting Statements
Following a highly anticipated meeting with China’s President Xi Jinping, US President Donald Trump shared positive remarks, stating, The meeting with Xi was amazing. He further elaborated on the discussions, rating the encounter a 12 on a scale of 1 to 10 and highlighting that a lot of decisions were made. Trump indicated that he would soon provide conclusions on very important things.
💡 Key outcomes from the meeting included an immediate agreement for China to begin purchasing soybeans. Furthermore, China committed to working diligently to address the fentanyl problem and agreed to a reduction in fentanyl tariffs.
While not all topics were covered, discussions did involve chips, with China indicating interest in procuring them from companies like Nvidia. The matter of rare earth issues was reportedly settled, removing previous roadblocks. This arrangement is described as a one-year agreement with provisions for extension.
Analysis of the trade implications suggests a significant reduction in tariffs on China, decreasing from 57% to 47%. Future engagement is planned, with President Trump intending to visit China in April, followed by a visit from President Xi to the US at a later date. The leaders also agreed to collaborate on finding a resolution for the situation in Ukraine.
Interestingly, the topic of Taiwan was not raised during the talks with President Xi. In a broader geopolitical context, Trump commented on nuclear arms testing, suggesting that it is appropriate for the US to engage in such activities given other nations are doing so. Separately, a US official confirmed that China will keep exports of rare earths flowing.
Market Sentiments and Trade War Dynamics
The market’s immediate reaction to the meeting’s outcomes suggested a lack of significant breakthroughs. The US Dollar Index (DXY) showed a lack of enthusiasm, falling back below the 99.00 level. Concurrently, the AUD/USD currency pair was observed consolidating its gains just below the 0.6600 mark at the time of reporting.
Understanding the US-China Trade War
What Does “Trade War” Mean?
Generally speaking, a trade war is an economic conflict between two or more countries due to extreme protectionism on one end. It implies the creation of trade barriers, such as tariffs, which result in counter-barriers, escalating import costs, and hence the cost of living.
What is the US-China Trade War?
An economic conflict between the United States (US) and China began early in 2018, when President Donald Trump set trade barriers on China, claiming unfair commercial practices and intellectual property theft from the Asian giant. China took retaliatory action, imposing tariffs on multiple US goods, such as automobiles and soybeans. Tensions escalated until the two countries signed the US-China Phase One trade deal in January 2020. The agreement required structural reforms and other changes to China’s economic and trade regime and pretended to restore stability and trust between the two nations. However, the Coronavirus pandemic took the focus out of the conflict. Yet, it is worth mentioning that President Joe Biden, who took office after Trump, kept tariffs in place and even added some additional levies.
Trade War 2.0
The return of Donald Trump to the White House as the 47th US President has sparked a fresh wave of tensions between the two countries. During the 2024 election campaign, Trump pledged to impose 60% tariffs on China once he returned to office, which he did on January 20, 2025. With Trump back, the US-China trade war is meant to resume where it was left, with tit-for-tat policies affecting the global economic landscape amid disruptions in global supply chains, resulting in a reduction in spending, particularly investment, and directly feeding into the Consumer Price Index inflation.
Expert Summary
The recent meeting between US President Donald Trump and China’s President Xi Jinping yielded positive statements from Trump, citing significant agreements on trade issues, including soybean purchases and the fentanyl crisis. Market reactions were subdued, indicating limited immediate impact. The ongoing geopolitical landscape suggests potential for renewed trade tensions with the re-election of President Trump.