Many market participants were left rather underwhelmed after the much-hyped Trump visit to China concluded, with equities and the CNY both softening on Friday as the summit ended without any major surprises. Understandably, markets tend to be more concerned with immediate deliverables, rather than rhetoric and broader political themes, but that does not make the latter unimportant.
In fact, both leaders touted an important consensus reached after the meetings, with Trump saying the relationship was “very strong” and Xi saying that both sides had achieved “lots of results” during the summit.
From China’s side, the key focus appears to be on the new language for framing China-US ties, namely a so-called “China-US constructive strategic stability” positioning to guide the next three-plus years of relations.
So what does this actually mean? Constructive strategic stability may sound like a simple slogan, but Xi called for concerted action to achieve this goal. The overarching message behind it is quite important to digest. In essence, this stance aims to strive for a relationship with cooperation at the core, while acknowledging that competition is inevitable but striving to keep it at a reasonable level. In practice, this probably means continued competition in strategic industries like tech while expanding cooperation in less sensitive fields.
The initial announcements look pretty limited, with the headlines centred on China’s agreement to buy 200 Boeing aeroplanes and resuming import licences for US beef plants. We do expect there should be more announcements coming through in the coming days and weeks, as both sides have hinted at significant progress.
Possible areas to watch for include a longer-term trade truce extension, potential tariff reductions, loosening or halting export controls on chips/rare earths, improving market access (also mentioned as a part of China’s opening up in China’s Two Sessions and Five-Year Plan), and other measures, including increasing the flow of tourism/travel and working to crack down on fentanyl.
Economic issues aside, the other side of China-US constructive strategic stability could also include more open and regular communication and respect for both sides’ red lines.
For China, the most important red line is without a doubt the Taiwan issue, made abundantly clear at the summit. Xi stated that as long as the Taiwan issue is handled well, relations will be generally stable, while failure to do so could lead to conflict and push ties into a dangerous situation.
There’s no doubt that this message was received, but whether it causes any change remains to be seen. In the early stages, comments from US Secretary of State Marco Rubio suggest that the US will attempt to maintain the status quo, rather than adjust its messaging to oppose Taiwan independence as China reportedly may have hoped for. The next key development to watch would be if arms sales to Taiwan proceed, or if they are scuppered.
For the US, while not a red line issue, it seems the focus was on securing China’s assistance to help end the Iran war, and also the various economic issues on trade and investment. It appears there should be some, but limited, positive progress on both fronts, with both countries agreeing the Strait of Hormuz should be open and China opposing militarisation of and toll collection in the Strait.
Of course, there’s certainly no guarantee that both sides will actually follow the spirit of this framework. However, at least verbally, it raises hope that China and the US could avoid returning to the destructive trade war we saw last year. A generally warm and positive tone from Trump’s visit, combined with an invitation for Xi to visit the US later in the year, suggests that ties have thawed, especially compared to this time last year when the trade war was reaching its peak.
Moving forward, actions speak louder than words. Substantive breakthroughs in the Iran war negotiations or changes in US arms sales to Taiwan could flag that more progress was achieved behind closed doors than expected. Time will tell.