Beijing and Washington move closer: trade truce expected ahead of Trump–Xi summit

After two days of talks in Malaysia, China and the United States have announced progress on tariffs, shipping costs, and rare earth exports. Markets have reacted enthusiastically, though analysts warn the peace may prove temporary.

China is celebrating the “hard-won results” of its recent negotiations with the United States, as the world awaits the face-to-face meeting between Xi Jinping and Donald Trump, scheduled for this week in South Korea. The Communist Party’s official newspaper, People’s Daily, urged the world’s major economies to safeguard the progress achieved, emphasizing that Beijing and Washington have shown they can manage their differences without descending into another trade confrontation.

Following two days of negotiations in Malaysia, the two powers unveiled a series of agreements covering tariffs, shipping costs, fentanyl trafficking controls, and exports of sensitive materials. It marks an important sign of de-escalation after weeks of tension and renewed tariff threats that had raised fears of another flare-up in the trade war.

Markets responded positively on Monday: the Hang Seng China Enterprises Index rose 1.3%, while the MSCI Asia Pacific Index hit a new intraday record. Yields on China’s ten-year government bonds also climbed, signaling a reduced appetite for safe-haven assets.

According to sources close to the talks, Xi and Trump are expected to formally endorse the deal in the coming days, addressing key issues such as rare earth exports and U.S. soybean purchases. Trump has reportedly hinted that he may suspend an investigation into China’s alleged violations of the trade agreement from his first term, should the summit end on a positive note.

Still, analysts urge caution. Experts at Bloomberg Economics note that while the deal represents progress, it may not ensure lasting stability: the new normal in U.S.–China relations appears to be one of “frequent breakdowns and temporary fixes.”

For Beijing, the truce offers a chance to refocus on its domestic economy and technological self-reliance, while People’s Daily calls on Washington to keep the bilateral economic consultation mechanism active.

The suspension of restrictions on rare earth exports and a possible reduction in tariffs on fentanyl are among the first signs of compromise. Yet, as Ting Lu, chief economist at Nomura, observes, the rivalry between the two superpowers is far from over: the new era of Sino-American relations seems destined to oscillate between tension, escalation, and brief moments of truce.

Andrea Pelucchi