Economy

Can Trump and Xi Mend Fences? How U.S.-China Talks Aim to Avert Trade War Blowback

Trump, Xi to meet in October despite trade tensions. Talks aim to de-escalate dispute over tariffs and rare earths.

October 13, 2025, 11:13 AM

A close-up profile shot of Xi Jinping, President of the People's Republic of China, wearing a blue suit and tie. By MDL.

Executive Summary

President Donald Trump and Chinese leader Xi Jinping are still expected to meet in South Korea in late October despite a recent escalation in trade tensions.

U.S. Treasury Secretary Scott Bessent confirmed that trade tensions have substantially de-escalated following communications between both sides, despite China’s rare earths export controls and Trump’s 100% tariff threat.

U.S.-China staff-level meetings are slated for this week in Washington to address ongoing trade disagreements, with the threatened 100% tariff “does not have to happen.”

The Story So Far

The current trade tensions between the U.S. and China are a continuation of an ongoing economic dispute, recently aggravated by China’s expansion of rare earths export controls—a critical sector China dominates—which President Trump countered with a threat of 100% tariffs on Chinese goods. Despite this escalation, both nations are actively engaged in de-escalation efforts, including an anticipated meeting between Donald Trump and Chinese leader Xi Jinping, reflecting a shared interest in preventing a full-blown trade war.

Why This Matters

Despite a recent escalation in trade tensions, the confirmed meeting between President Trump and Chinese leader Xi Jinping, coupled with de-escalation efforts, provides a temporary reprieve for global markets, which reacted positively to the news. However, the underlying economic friction, particularly regarding China’s critical rare earth export controls and the U.S. refusal to accept new licensing requirements, indicates that significant disagreements persist, necessitating ongoing high-level diplomatic engagement to prevent broader global economic disruption.

Who Thinks What?

U.S. Treasury Secretary Scott Bessent, representing the U.S. administration, believes trade tensions have substantially de-escalated following recent communications, expects President Trump and Chinese leader Xi Jinping to meet as planned, and states that the threatened 100% tariff “does not have to happen” while rejecting China’s rare earth licensing requirements.

China attributes the rising trade tensions to the United States, calls President Trump’s latest tariff threat “hypocritical,” and defends its expanded rare earth export controls as necessary.

U.S. President Donald Trump and Chinese leader Xi Jinping are still expected to meet in South Korea in late October, despite a recent escalation in trade tensions, U.S. Treasury Secretary Scott Bessent confirmed on Monday. Bessent stated that both sides have engaged in substantial communications over the weekend, leading to a de-escalation of the dispute. This development follows China’s expansion of rare earths export controls and Trump’s subsequent threat of a 100% tariff on Chinese goods.

Recent Trade Rupture

The latest trade rupture began last Thursday when China announced a significant expansion of its rare earths export controls. This move prompted a sharp countermeasure from President Trump on Friday, which threatened a 100% tariff and sent global markets into a spiral. Rare earth elements are crucial for various high-tech manufacturing processes, and China dominates their global market.

De-escalation Efforts Underway

Treasury Secretary Bessent, speaking on Fox Business Network, indicated that the tariffs would not take effect until November 1, providing a window for diplomatic resolution. “We have substantially de-escalated,” Bessent said, expressing confidence that the meeting between Trump and Xi would proceed as planned. The two leaders had originally scheduled to meet during the Asia-Pacific Economic Cooperation (APEC) forum in South Korea.

Investors reacted positively to the news of potential de-escalation, with the dollar edging up on Monday after Friday’s market sell-off. Bessent also announced that U.S.-China staff-level meetings are slated for this week in Washington, coinciding with the World Bank and International Monetary Fund annual gatherings. These discussions are aimed at addressing the ongoing trade disagreements.

U.S. Stance on Tariffs and Controls

Bessent emphasized that the threatened 100% tariff “does not have to happen,” highlighting that despite recent announcements, the lines of communication between the two economic powers have reopened. He acknowledged China’s move as provocative and asserted that the U.S. pushed back aggressively, seeking support from allies in Europe, India, and democratic nations in Asia. “China is a command and control economy. They are neither going to command nor control us,” Bessent stated.

China’s Perspective

On Sunday, China attributed the rising trade tensions to the United States, calling Trump’s latest tariff threat “hypocritical.” Beijing defended its restrictions on rare earth elements and associated equipment, which are vital for technology manufacturing. Under China’s new regulations, foreign companies producing certain rare earths or related magnets will require a Chinese export license if the final product contains or is made with Chinese equipment or material, even without direct involvement of Chinese companies in the transaction. Bessent confirmed that the United States would reject such licensing requirements.

Market Volatility

Trump’s unexpected announcement on Friday had significantly impacted global financial markets, causing the benchmark S&P 500 Index to drop over 2%. This represented its largest single-day decline since April, a period also marked by increased market volatility due to previous tariff announcements from the Trump administration.

Outlook

The anticipated meeting between President Trump and Party Chair Xi in South Korea underscores ongoing efforts to stabilize U.S.-China trade relations. While recent actions from both nations highlight persistent economic friction, the resumption of high-level communications and staff-level talks suggests a shared interest in preventing a full-blown trade war and its potential global economic fallout.