The Trump-Xi truce is just a pause before the big battle

US President Donald Trump described his meeting with Xi Jinping in South Korea as “really great”, where the two leaders agreed to a one-year truce in the trade war, an agreement that temporarily stabilizes US-China relations without resolving their deep strategic differences.

However, the year-long truce agreed on Thursday between the two leaders is expected to stabilize rather than resolve fundamental differences between the world’s two largest economies, with the two sides buying time to further reduce their interdependence in critical strategic areas. The meeting, at the same time, highlighted how much stronger China has become since Trump’s first term, as noted by the Bloomberg agency.

Trump’s decision to reduce tariffs on fentanyl and extend the current truce on reciprocal tariffs will keep many Chinese exports at rates around 47%a level low enough for the Chinese industrial base to remain competitive against regional rivals.

Equally important, the US suspended new regulation that would have extended restrictions on blacklisting Chinese companies, while China had already imposed restrictions on rare earth exports, a development that analysts said appears to have eased Washington’s push for further controls.

“China has made some concessions, but the clear conclusion is that Beijing’s threats have forced the US to back down from a series of new restrictions,” said Scott Kennedy, senior adviser at the Center for Strategic and International Studies in Washington.

“Xi has secured more ‘safe space’ for the Chinese economy and for his country’s strategy to achieve greater global influence,” he added.

US President Donald Trump secured the resumption of soybean sales and rare earth imports from Chinaaddressing two of the US’s key political and economic weaknesses. At the same time, the agreement to sell the American operations of ByteDance (TikTok) gives him the opportunity to present to younger voters that he “rescued” the highly popular application. Hardliners in Washington, on the other hand, appear pleased that Trump has not granted China access to Nvidia’s top AI chips or backed down on the US commitment to Taiwan’s defense.

However, the deal does not include the structural changes that Trump has pledged to pursue to correct US-China trade imbalances. For markets, which had been expecting an end to uncertainty and escalating tensions, Thursday’s outcome looked more like a temporary truce in a long-running battle for global dominance.

“I don’t think we’ll see a full disengagement, but a strategic disengagement,” said Robert Lighthizer, the US’s chief negotiator with China during Trump’s first term. “This will only last a few months or a year, and then we will be back at the table again,” he added.

On his way back from the meeting in Busan, South Korea, near where the Asia-Pacific Economic Cooperation (APEC) summit is being held, Donald Trump said the deal with China would be renewed annually.

“We have an agreement and every year we will renegotiate it,” he told reporters aboard Air Force One, adding that he expected it to be extended.

Trump also revealed that he will visit China in April, while Xi Jinping will pay an official visit to the US at a later date.

Apparently satisfied, the American president wrote on social networks that the agreement will be a boost for American farmers, it will help address the fentanyl crisis and may lead to an energy deal that will boost the US economy.

“The agreements reached today will bring prosperity and security to millions of Americans,” he wrote.

The markets, however, appeared indifferent to the agreement. Wall Street futures were largely unchanged at the open in New York, while China’s CSI 300 closed down 0.8 percent.

“We’ve seen this scenario before: bullish tone but little follow-through,” commented Charu Chanana, chief investment strategist at Saxo Markets in Singapore. “The meeting had the right image to the outside, but what the markets really wanted was a joint statement, something tangible to turn optimism into certainty,” he added.

With US-China competition intensifying over the past decade, the deal appears more designed to avoid mutual economic disaster than to enhance cooperation by easing national security restrictions or facilitating investment flows.

The US and China are moving apart for good

Donald Trump, as part of his Asia tour, sought to strengthen US relations with key allies such as Japan and South Koreawhile securing investments in the shipbuilding and rare earth sectors, sectors that could give him a stronger bargaining position against Xi next year.

China, for its part, is moving methodically to reduce its dependence on the US for critical technologies. The Communist Party’s new five-year plan focuses primarily on developing domestic technological innovations, particularly high-performance semiconductors, to create supply chains independent of the US.

“There is no doubt that the two countries are moving apart and building their own autonomous financial ecosystems,” Steven Jenn, managing director of Eurizon SLJ Capital, wrote in a note to investors.

While the deal offers Trump political benefits in the short term by restarting Chinese markets for agricultural products, such as soybeans, to favor American farmers, and saving TikTok as a communications weapon ahead of next year’s midterm elections, there are no signs the deal will reduce the huge trade deficit or address concerns about Beijing’s industrial subsidies.

The repeal of the so-called “subsidiary rule” removes some regulatory burdens, but could spark a backlash from those who believe Beijing is using complex corporate structures to circumvent US controls on access to sensitive technologies.

“America’s Weakest Point”

In the wider competition, China now looks confident in its position. Donald Trump’s decisionπ to “freeze” the rule for subsidiary companies it marks the second time Xi Jinping has successfully used rare earth leverage to force the US president to back down. The first was the agreement to reduce tariffs from an astronomical 145%.

Under US export regulations introduced last month, subsidiaries in which blacklisted Chinese firms own at least 50% would be subject to the same restrictions as their parent. That would extend the controls to about 20,000 companies, widening the “ban circle” of Chinese firms from US exports by 15 times, according to an analysis by Martin Chorzemba, a senior fellow at the Peterson Institute for International Economics in Washington.

Tu Xingguan, a former adviser to China’s Ministry of Commerce, said both sides took a step back as neither could afford the financial cost of further escalation. However, he added, China’s control of the rare earths now gives it a “card” it has not had the courage to use in previous years.

“We can’t say that this paper will work forever, no one can say that,” he noted. “But at least for now, we’ve identified America’s weak spot.”