Trade Winds Shift as U.S. and China Seek Common Ground in London Negotiations

In early June 2025, U.S. and Chinese trade officials met in London for what many expected to be another inconclusive round in a prolonged economic standoff. Instead, the negotiations yielded a surprise, an “in principle” framework agreement aimed at stabilizing one of the world’s most economically consequential relationships. Though still awaiting final approval from Presidents Donald Trump and Xi Jinping, the deal marks a potential turning point in the tariff-driven conflict that has reshaped global supply chains, technology flows, and geopolitical strategy over the past five years.

At the center of this framework are mutual concessions on export controls, with a focus on two strategic resources: rare earth minerals and semiconductors. China, which supplies more than 80% of the world’s processed rare earths, agreed to resume “full magnets, and any necessary rare earths” exports to the United States, materials essential to everything from fighter jets to electric vehicles (Gan & Liu, 2025). In exchange, the U.S. indicated it would ease restrictions on some semiconductor exports and reverse recent policies targeting Chinese students’ access to American universities.

Commerce Secretary Howard Lutnick confirmed the structural goals of the talks, emphasizing that the framework builds on the temporary tariff truce negotiated in Geneva in May. “Now we can go forward to try to do positive trade, growing trade,” Lutnick told reporters, reflecting optimism that has been absent in recent bilateral engagements (Inocencio & Reals, 2025).

The economic context surrounding these negotiations is critical. In May 2025, Chinese exports to the United States plunged by 35% year-over-year, the steepest decline since the early pandemic era in 2020. While this downturn reflected both the lingering impact of tariffs and new U.S. export restrictions, Beijing’s retaliatory clampdown on rare earth shipments escalated tensions. In response, the Biden and Trump administrations had imposed broad controls on semiconductor tools, software, and high-performance chips, moves that Beijing viewed as violations of prior agreements.

Though specific details remain limited, the London framework appears to set up a phased de-escalation. The U.S. is expected to lift some export controls on semiconductors, excluding “very, very high-end Nvidia” chips used for artificial intelligence, which remain off-limits due to national security concerns (WSJ Staff, 2025). China, for its part, began approving rare-earth export licenses in what its Commerce Ministry described as a goodwill gesture. Kevin Hassett, Director of the National Economic Council, predicted a swift outcome, stating, “I expect this to be a short meeting with a big strong handshake” (WSJ Staff, 2025).

Still, this progress comes with caveats. The framework is not yet binding, and both leaders must sign off before implementation begins. Moreover, the deal leaves in place a hefty set of tariffs: the U.S. will maintain a 55% average tariff on Chinese imports, while China will retain its 10% rate on U.S. goods. This indicates that while hostilities may have cooled, strategic distrust remains deeply embedded in both capitals.

The stakes are high. Economists warn that without rare-earth access, American manufacturers could face component shortages within weeks. “A ‘fail’ would raise the risk of auto and aircraft production grinding to a halt as soon as next month,” said Carl Weinberg, Chief Economist at High Frequency Economics. “If that happens, economic growth will be severely dented for an unknown term” (Inocencio & Reals, 2025).

The London agreement represents more than a tactical pause; it is a test of political will and policy discipline. Whether this framework can survive beyond July 9, the date when paused tariffs could snap back into place, will depend on the credibility of commitments made and the political calculus of two very different administrations. For business leaders, investors, and policymakers, the path ahead will demand careful scrutiny, as the world’s two largest economies decide whether to turn a fragile truce into a sustainable partnership.

Sources

Gan, Nectar, and John Liu. “U.S. and China Agree on Plan to Ease Export Controls after Trade Talks in London.” CNN, 10 June 2025, updated 11 June 2025, https://www.cnn.com/2025/06/10/business/us-china-trade-talks-london-agreement-intl-hnk.

Inocencio, Ramy, and Tucker Reals. “Trump Says U.S. Trade Deal with China Is Done, after Tariff Talks in London Yield ‘Framework Deal.’” CBS News, 11 June 2025, 9:13 AM EDT, https://www.cbsnews.com/news/trump-us-china-trade-deal-done-tariff-talks-london-framework/.

“Stock Market News, June 9, 2025: U.S.-China Trade Talks in Spotlight; Chip Stocks Aid Nasdaq.” The Wall Street Journal, 9 June 2025, 10:31 PM New York Time, https://www.wsj.com/livecoverage/stock-market-today-trump-tariffs-trade-war-06-09-2025?mod=lc_navigation.