Source: Reuters

Top U.S. and Chinese officials were meeting in London on Monday to try to defuse a trade dispute that has widened from tariffs to restrictions over rare earths, threatening a global supply chain shock and slower economic growth.

On the first of likely two days of talks, officials from the two superpowers were meeting at the ornate Lancaster House to try to get back on track with a preliminary agreement struck last month in Geneva that had briefly lowered the temperature between Washington and Beijing.

Since then the U.S. has accused China of slow-walking on its commitments, particularly around rare earths shipments.

White House economic adviser Kevin Hassett said on Monday that the U.S. team wanted a handshake from China on rare earths after PresidentDonald Trump said Chinese President Xi Jinping had agreed to resume shipments in a rare call between the two presidents last week.

“The purpose of the meeting today is to make sure that they’re serious, but to literally get handshakes,” Hassett, director of the National Economic Council, told CNBC in an interview. He said the U.S. would expect export controls to be eased and rare earths released in volume immediately afterwards.

The London talks, expected to continue into the evening on Monday, come at a crucial time for both economies, which are showing signs of strain from Trump’s cascade of tariff orders since his return to the White House in January.

Customs data showed that China’s exports to the U.S. plunged 34.5% year-on-year in May in value terms, the sharpest drop since February 2020, when the outbreak of the COVID-19 pandemic upended global trade.

In the U.S., business and household confidence has taken a pummeling, while first-quarter gross domestic product contracted due to a record surge in imports as Americans front-loaded purchases to beat anticipated price increases.

But for now, the impact on inflation has been muted, and the jobs market has remained fairly resilient, though economists expect cracks to become more apparent over the summer.

Attending the talks in London are U.S. Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and U.S. Trade Representative Jamieson Greer. The Chinese contingent led by Vice Premier He Lifeng includes Commerce Minister Wang Wentao and the ministry’s chief trade negotiator, Li Chenggang.

The inclusion of Lutnick, whose agency oversees export controls for the U.S., is one indication of how central rare earths have become, and some analysts saw it as a sign that Trump is willing to put recently imposed Commerce Department export restrictions on the table.

China holds a near-monopoly on rare earth magnets, a crucial component in electric vehicle motors.

Lutnick did not attend the Geneva talks at which the countries struck a 90-day deal to roll back some of the triple-digit tariffs they had placed on each other.

POSITIVE CONCLUSION

Trump and Xi spoke by phone last week, their first direct interaction since Trump’s January 20 inauguration.

During the call, Xi told Trump to back down from trade measures that roiled the global economy and warned him against threatening steps on Taiwan, according to a Chinese government summary.

But Trump said on social media the talks focused primarily on trade led to “a very positive conclusion,” setting the stage for Monday’s meeting in the British capital.

The next day, Trump said Xi had agreed to resume shipments to the U.S. of rare earths minerals and magnets, and Reuters reported that China has granted temporary export licenses to rare-earth suppliers of the top three U.S. automakers.

EXPORT RESTRICTIONS IN FOCUS

China’s decision in April to suspend exports of a wide range of critical minerals and magnets upended the supply chains central to automakers, aerospace manufacturers, semiconductor companies and military contractors around the world.

Kelly Ann Shaw, a former White House trade adviser during Trump’s first term, said that the U.S. was arguing that China’s continued export control restrictions violated the agreement in Geneva to remove retaliatory measures.

“What I expect to see announced in the next few hours is effectively a reaffirmation of China’s commitment, plus some concessions on the U.S. side, with respect to export controls measures over the past week or two,” said Shaw, a trade partner at the Akin Gump law firm in Washington.

But Shaw said she expected the U.S. only to agree to lift some new export curbs, not longstanding ones such as for advanced artificial intelligence chips. Reuters reported on May 28 that the U.S. ordered a halt to shipments of semiconductor design software and chemicals and aviation equipment, revoking export licenses that had been previously issued.

White House spokeswoman Karoline Leavitt told the Fox News program “Sunday Morning Futures” that the U.S. wanted the two sides to build on the progress made in Geneva in the hope they could move towards more comprehensive trade talks.

The preliminary deal in Geneva sparked a global relief rally in stock markets, and U.S. indexes that had been in or near bear market levels have recouped the lion’s share of their losses.

But Ian Bremmer, president of the Eurasia Group, said while a temporary truce was possible, there was little prospect for the bilateral relationship to become constructive given broader decoupling trends and continued U.S. pressure on other countries to take China out of their supply chains.

“Everyone around Trump is still hawkish and so a breakthrough U.S.-China trade deal is unlikely, especially in the context of other deals that are further along and prioritized,” he said in an analyst note.

Reporting by Trevor Hunnicutt, Dan Burns and Andrea Shalal in Washington, Nathan Layne in Connecticut, Brenda Goh in Beijing and Kate Holton and Andrew MacAskill in London; Writing by Dan Burns and Kate Holton; Editing by Toby Chopra and Alistair Bell

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