US, China seek to avoid trade war escalation, salvage Trump-Xi meeting in Malaysia talks

Some of those announcements may fall to Trump, who is due to arrive in the Malaysian capital on Sunday.

“We won’t know if Beijing has successfully counterbalanced the U.S.’s export controls with restrictions of their own or if they’ve induced a continuation of an escalatory spiral until Trump and Xi meet,” said Scott Kennedy, a China economics expert at the Center for Strategic and International Studies in Washington.

“If they make a deal, their gambit will have paid off. If there’s no deal, then everyone will need to prepare for things to get much nastier.”

RARE EARTHS STRANGLEHOLD

The world’s two largest economies are seeking to avoid a return of their tariff escalation to triple-digit levels on both sides that exploded in April when Trump imposed broad global levies. China also responded to Trump’s tariffs by cutting off rare earths supplies to U.S. buyers.

Bessent and Greer’s first meeting with He in Geneva in May led to a 90-day truce, which brought down tariffs sharply to about 55% on the U.S. side and 30% on the Chinese side and restarted the flow of magnets. It was extended in subsequent talks in London and Stockholm and was due to expire on November 10.

But the delicate truce frayed at the end of September, when the U.S. Commerce Department vastly expanded a U.S. export blacklist to automatically include firms more than 50% owned by companies already on the list, banning U.S. exports to thousands more Chinese firms.

China struck back with the new global rare earth export controls on October 10, aiming to prevent their use in military systems by requiring export licenses for products using Chinese rare earths or rare earth refining, extraction or processing technology developed by Chinese firms.

Bessent and Greer blasted China’s move as a “global supply chain power grab” and vowed the U.S. and its allies would not accept the restrictions. Reuters reported that the Trump administration is considering a plan to up the ante with curbs on a dizzying array of software-powered exports to China, from laptops to jet engines, according to sources familiar with the deliberations.

The Trump administration added to the tension on Friday by announcing a new tariff probe into China’s “apparent failure” to meet the terms of the 2020 U.S.-China “Phase One” trade agreement that halted their trade war during Trump’s first term.

The move could create an additional legal authority for Trump to further increase tariffs on Chinese imports. China committed to major increases in purchases of U.S. farm products, manufactured goods, energy and services in the 2020 deal, but the targets were never met.

That also could lead the U.S. side to press Beijing to resume buying American soybeans after China bought none in September, heaping economic pain on farmers, a key Trump political constituency.

(Reporting by Xinghui Kok Rozanna Latiff and Danial Azahar in Kuala Lumpur and David Lawder and Trevor Hunnicutt in Washington; Writing by David Lawder and Brenda Goh; Editing by Tom Hogue)