Top officials from the United States and China were meeting in London on Monday in an effort to ease a high-stakes trade dispute that has expanded beyond just tit-for-tat tariffs. The row now includes restrictions on rare earth materials, posing a serious threat to global supply chains and potentially hampering worldwide economic growth.
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 US has accused China of slow-walking on its commitments, particularly around rare earths shipments.
Handshake Meeting
US economic adviser Kevin Hassett said on Monday that the US team wanted a handshake from China on rare earths after Presidents Donald Trump and Xi Jinping spoke 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 expectation was that immediately after the handshake, export controls would be eased and rare earths released in volume.
US Tariffs And Its Effects
The talks, which could run into Tuesday, come at a crucial time for both economies, with investors looking for relief from Trump’s cascade of tariff orders since his return to the White House in January.
China’s export growth slowed to a three-month low in May while its factory-gate deflation deepened to its worst level in two years.
In the US, the trade war has put a huge dent in business and household confidence, and 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.
Rare Earth Assuming Importance
Attending the talks in London will be US Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and US Trade Representative Jamieson Greer, and a Chinese contingent helmed by Vice Premier He Lifeng.
The inclusion of Lutnick, whose agency oversees export controls for the US, is one indication of how central rare earths have become. 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’
The second round of meetings comes four days after Trump and Xi spoke by phone, their first direct interaction since Trump’s January 20 inauguration.
During the more than one-hour-long 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 London.
The next day, Trump said Xi had agreed to resume shipments to the US of rare earths minerals and magnets and Reuters reported on Friday that China has granted temporary export licenses to rare-earth suppliers of the top three US automakers.
Building On Geneva Talks
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.
White House spokeswoman Karoline Leavitt told the Fox News program “Sunday Morning Futures” that the US 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 US indexes that had been in or near bear market levels have recouped the lion’s share of their losses.
Broader Concerns Still Remain
The S&P 500 Index, which at its lowest point in early April was down nearly 18% after Trump unveiled his sweeping “Liberation Day” tariffs on goods from across the globe, is now only about 2% below its record high from mid-February. The final third of that rally followed the US-China truce struck in Geneva.
Still, that temporary deal did not address broader concerns that strain the bilateral relationship, from the illicit fentanyl trade to the status of democratically governed Taiwan and US complaints about China’s state-dominated, export-driven economic model.
While the UK government will provide a venue for Monday’s discussions, it will not be party to them and will have separate talks later in the week with the Chinese delegation.
The dollar slipped against all major currencies on Monday as investors waited for news, while oil prices were little changed.
(With inputs from Reuters)
