China – US Busan Summit: A Trade Truce, For Now

On October 30th, U.S. President Donald Trump met with Xi Jinping in Busan, South Korea. Despite the exaggerated description by the Whitehouse as “massive victory” for American workers, as a result of the “trade and economic deal”. Beyond the hyperbole, the meeting can rather be best described as a one-year trade truce with a non-bonding agreement between both sides, as the talks yielded agreements on a narrow set of issues of concern, but with no major strategic breakthrough.

The agreement, however, has avoided an all-out trade war and brought relief to investors and political leaders worldwide. The U.S. agreed to reduce tariffs on Chinese exports from 57% to 47%, bringing the tariff rate roughly in line with those of its regional neighbours, and also agreed to pause new rules that would have imposed restrictions on Chinese companies’ access to advanced U.S. technology. While on the illegal export of fentanyl, both sides agreed to resume cooperation.

China agreed to hold-off imposing restrictions on exports of rare-earth materials that are critical for the manufacturing industry such as cars, phones, medical devices and weapons. China controls 60% of the extraction capacity for rare earths and 90% of the refining capacity. The deal also extended to the EU, according to European Commission spokesperson Olof Gill, “this is an appropriate and responsible step in the context of ensuring stable global trade flows in a critically important area.” Indeed, this will be welcome news for European companies who have experienced delays and price increases as a result of Beijing’s export restrictions.

However, there was no agreement on AI or semiconductors. President Trump maintained that the U.S. would not lift its export ban on U.S. Nvidia Blackwell chips going to China, which had first been introduced under President Joe Biden. Nvidia CEO Jensen Huang has been lobbying the White House to loosen export controls to unlock China’s $50 billion AI market.

The USA and China are the two largest economies in the world; their economies account for 43% of the global gross domestic product (GDP). China is also the third-largest export market for the United States, with U.S. exports exceeding $195 billion in 2024, just behind Canada and Mexico. As for imports, Chinese goods account for around 13.5% of the market. Many of these imported goods are technologies such as computers, electric batteries, and video displays. The U.S. has the largest trade deficit with China, at $295 billion. Moreover, China has a considerable holding in U.S. Treasury bonds, worth roughly $760 billion.

President Trump’s arbitrary tariffs on Chinese goods began in 2018, when he accused Beijing of unfair trade practices and forced technology transfers. This sparked a phase of tit-for-tat measures, with China retaliating with its own tariffs targeting politically sensitive U.S. industries, such as agriculture. Over the years, both sides expanded their conflict to include export controls, investment bans, and limits on technology cooperation.

The U.S. and China both have considerable leverage over the other. The U.S. has large semiconductor stockpiles, a large consumer market, and the U.S. dollar; however, China also has an increasingly sophisticated tech sector, a large consumer market, and a strong manufacturing base. In the context of this summit, China achieved their objectives with few concessions. According to Noah Barkin’s newsletter’ Watching China in Europe,’ a European diplomat told him “The US will think twice about hitting China with new national security measures, knowing that they would invite massive retaliation from the Chinese side.”

While the meeting between Trump and Xi offered only temporary concessions, it will bring some respite to businesses, as the reduction in tariffs will ease and stabilise trade flows, particularly for export-oriented industries. Likewise, the delay of rare-earth export controls will be welcome news for industries worldwide that rely on Chinese materials and technologies for their manufacturing. Moreover, the agreement will provide a framework for future negotiations, as President Trump plans to visit China in April next year, while Xi Jinping will visit the U.S. for the Group of Twenty (G20) summit in December.

Trump has used trade measures to confront China and to demonstrate American prowess, and, in retrospect, to present the existing “deal” to domestic voters as evidence that he effectively managed the negotiations with China, with next year’s mid-term elections in mind. China’s agreement to reopen trade for American soybeans is particularly relevant here. China agreed to purchase over 12 million tons of soybeans and 25 million tons annually for three years, and are worth over $29billion for U.S. farmers. Moreover, both sides agreed to pause port fees to their corresponding vessels.

For Beijing, the goal was to present a positive image of itself and play the long game. With this deal, China presents itself as a responsible actor in an unstable environment. Meanwhile, Beijing sought to reduce tensions between the two sides and maintain some level of de-escalation, enabling it to execute critical reforms and turbocharge its domestic innovation.

In Beijing, at the Fourth Plenum of the Communist Party’s 20th Central Committee, Xi Jinping re-enforced his authority over the Chinese Community Party (CCP) by announcing the expulsion of 11 members from the Central Committee, the biggest expulsion of members since 2017. Meanwhile, on the economic front Xi Jinping stressed the importance of “building a modernised industrial system” and “self-reliance and self-strengthening in science and technology.” The new Five-Year Plan signals a shift in China’s growth model, with an emphasis on domestic innovation and secured manufacturing supply chains.

The follow-up meetings between Trump and Xi will be critical to the success of the Busan summit. As the existing agreement is time-limited to one year, failure to follow through will quickly lead to the reimposition of trade barriers. Under the 2020 Phase One trade deal, China purchased only 58% of the agreed exports. In a similar scenario, the U.S. will retain its leverage to re-impose tariffs if China does not follow through. Critically for the U.S., China has replaced much of its soybean imports from the U.S. with imports from Brazil and Argentina. Meanwhile, Beijing has only delayed the issuance of rare-earth export licenses and will keep that leverage in reserve should the U.S. not live up to its side of the bargain. However, if the agreement holds and tension is reduced, it could restore greater dialogue between the sides and prove pivotal in restoring business confidence.

However, it is more likely the underlying rivalry across key strategic domains (economic, technological, ideological, diplomatic, and military) will remain. This will be particularly evident in sensitive sectors such as semiconductors, AI, and quantum computing, as both the U.S. and China continue to prioritise strategic competition and national security. Therefore, many feel the Busan agreement is another example of a fragile truce between two superpowers. While the truce provides a floor for the U.S.–China trade relationship, bringing a degree of predictability to industries navigating the two powers, the underlying structural imbalance and strategic competition of the relationship will remain and will continue to dictate the contours of the geopolitical relationship into the future.