In a renewed effort to ease escalating trade tensions, US and Chinese officials reconvened for critical talks in London. With a mix of cautious optimism and unresolved disputes, the discussions center on sensitive issues such as technology restrictions and rare earth mineral exports. This blog post dives into the key points of the negotiations, expert opinions, and the potential market implications as both nations navigate an increasingly complex economic landscape.

Key Points

• US-China trade talks have restarted in London, with a special focus on tech restrictions and the export of rare earth minerals.
• China recently offered export permits for rare earth minerals to US firms, sparking hopes for progress.
• With a 40% drop in China’s exports to the US so far this year, the urgency for a lasting resolution has grown.

US-China Trade Talks Take Center Stage

On Monday, June 9, high-level officials from both sides met in London to resume discussions that began amid a fierce trade war marked by tariffs and counter-tariffs. The previous 90-day truce, although a temporary pause, allowed the parties to open dialogue. Yet, accusations of truce breaches from both sides added tension to the proceedings.

Two main topics dominated the agenda:

• Rare Earth Mineral Exports: Amid growing concerns, China extended an olive branch by granting export permits to US auto suppliers in a bid to ease the strained relationship.
• Tech and Semiconductor Restrictions: With disputes over restrictions on semiconductors and other AI-related technology, both sides are under pressure to reach a mutual compromise.

Key participants included US Treasury Secretary Scott Bessent, US Trade Representative Jamieson Greer, US Secretary of Commerce Howard Lutnick, along with their Chinese counterparts such as Vice Premier He Lifeng and Commerce Minister Wang Wentao. The six-hour meeting is scheduled to continue on Tuesday, June 10.

“Absolutely expecting progress from US-China talks. US-China meeting today to be short, but bear results. Expecting China to release minerals US needs US to release export controls if China talks go well.” – US National Economic Council Director Hassett

Economists Skeptical About a Deal

Despite the diplomatic gestures and a temporary truce, some economists remain unconvinced. Alicia Garcia Herrero, Natixis Asia Pacific Chief Economist, stated:

“While a temporary truce on export controls might be reached, a meaningful agreement remains unlikely.”

This skepticism reflects the complex dynamics and deep-rooted economic differences that continue to underpin the negotiations.

Economic Divergence Concerns Mount

Apart from the trade talks, growing economic divergence between the two giants has attracted significant attention. While China battles persistent deflationary pressures, the US faces creeping inflation—a contrast that complicates efforts to strike a balanced deal.

On June 9, inflation data from China revealed that consumer prices fell by 0.1% year-on-year, matching April’s figures, and producer prices dropped by 3.3% after a 2.7% decline in the previous month.

“China – PPI pulls inflation down further. CPI was surprisingly firm in May, with core continuing to show a reversal from the deflation of 2024. Overall, however, normal indicators remain very weak. Leads for core have started to deteriorate again, and PPI deflation accelerated in May. The GDP deflator will be negative once again in Q2.” – East Asia Econ

Furthermore, trade data painted a stark picture: exports from China to the US have plummeted by 40% this year, clearly underscoring how tariffs and trade policy have reshaped market practices.

Markets Eye London as Trade Deal Uncertainty Lingers

On Tuesday, June 10, early trading in Hong Kong and Mainland China showed only a modest reaction to the overnight updates in trade negotiations. The CSI 300 and Shanghai Composite Index in Mainland China recorded small gains, while the Hang Seng Index in Hong Kong edged up by 0.18%.

However, despite ongoing US restrictions targeting China’s technological advancements, the US “Magnificent 7” tech stocks have continued to underperform relative to China’s rising tech sector. For instance, the Roundhill China Dragons ETF has surged 21.91% year-to-date, while its US counterpart, the Roundhill Magnificent Seven ETF, is down by 2.11%.

US-China trade talks in London – a critical moment to ease tensions and reset trade agreements

China’s Technological Momentum

Amid these high-stakes negotiations, market watchers are also keeping a close eye on the tech sector. China’s ability to push ahead technologically—despite US restrictions on AI and semiconductor exports—is being highlighted by contrasting market performances and industry trends.

Daily chart showing China Tech Stocks vs. US Magnificent 7 – Daily Chart – 100625

Outlook

As the talks enter their second day, the potential for a comprehensive trade agreement remains uncertain. Should both nations succeed in easing restrictions on technology and rare earth exports, it could pave the way for broad-based market gains. Conversely, a breakdown in negotiations may prompt investors to seek safer alternatives, thereby impacting regional stock markets.

The unfolding dialogue between Washington and Beijing is certain to have far-reaching implications across global financial markets. Stay tuned as the conversation evolves and as markets absorb these critical developments.

Conclusion

The resumed US-China trade talks illustrate the delicate balancing act both nations face—managing fierce economic divergence while attempting to negotiate terms that will ultimately benefit both sides. While recent gestures have injected a measure of optimism into the proceedings, key challenges remain that could determine whether a lasting agreement is within reach.

Tags: #USChina #TradeTalks #RareEarth #TechRestrictions