Trade conflict: China and the US struggle for compromise in tariff dispute

The two parties met on Monday on neutral ground, at Lancaster House in London. A place free from tension, just as couples therapists recommend for estranged spouses. However, the talks between the US and China are not about a family feud, but about the future of global trade. Delegations from both countries are negotiating a trade deal in the British capital this week. It is intended to further de-escalate the months-long trade dispute .

Negotiations are underway on the withdrawal of the currently applicable punitive tariffs, China's export ban on rare earths, technology restrictions, and possible commitments to balance trade flows. The US wants China to import more American products and open its market more. China is demanding easing of export bans on technology for the production of semiconductors and aircraft turbines, less political interference in supply chains, and a relaxation of visa rules for skilled workers and students from China.

The American delegation is led by Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, and Trade Representative Jamieson Greer. Vice Premier He Lifeng, who had already led the talks for China in Geneva, will again be at the table. There, the two rivals agreed to a preliminary compromise in mid-May. The US government reduced its retaliatory tariffs on Chinese imports from 145 percent to 30 percent. In return, China reduced its import fees from 125 percent to 10 percent. The agreement was intended to provide time for a larger deal. US President Donald Trump has threatened to reinstate the retaliatory tariffs, which he suspended for 90 days, on July 9.

The pressure to find a lasting solution is high. China's exports to the US collapsed by 35 percent in May compared to the previous year. This was the largest decline since the start of the pandemic. Following the heavy tariffs on Chinese goods imposed by Trump in early April, many US companies canceled their orders from the People's Republic or stopped their container shipping. In most cases, the customs duties significantly exceeded the value of the cargo. Individual companies subsequently filed for bankruptcy. Retail groups like Walmart announced they would raise their prices. In the US, many realized, perhaps for the first time, how closely the American economy is intertwined with China. Economists warned of empty shelves and a recession, and some even saw the Christmas shopping season at risk.

The Chinese economy also relies on exports to the US. It is struggling with a real estate crisis and weak domestic consumption. The Chinese leadership is therefore pushing for predictable conditions for foreign trade, especially in raw materials and high-tech.

Nevertheless, the signs recently pointed to escalation again. Shortly after the talks in Geneva, mistrust began. China halted the export of rare earths, on which Western industries urgently depend. The United States tightened its technology restrictions on aviation and other industries. It also imposed strict new visa rules for Chinese students. Trump accused Beijing of breaching the agreement, and China countered with accusations of deliberate sabotage. The ceasefire began to falter, and London became a stopgap measure.

The issue of rare earths is particularly pressing for Washington. China controls approximately 90 percent of global production of these specialty metals, which are essential for electric motors, defense technology, and high-tech applications. Since the export ban in April, many US companies have been under pressure. Negotiations are now underway in London over whether Beijing will allow certain exceptions and what the US government will offer in return.

According to US media reports, Trump has postponed one point of contention. The Chinese government was supposed to approve a sale of the video app TikTok to an international investor by mid-June. Otherwise, TikTok faces a ban in the US. The deal is politically sensitive and requires approval at the highest level. But Trump has reportedly postponed the deadline for the sale again, according to the Wall Street Journal .

A US federal court further complicated the situation last week. It declared key elements of Trump's tariff policy illegal. While the retaliatory tariffs against China remain in effect in a weakened form for the time being, the US government must provide evidence by mid-June as to why they do not violate the US Constitution. China is likely to try to capitalize on this, for example by demanding further reductions and promising not to impose new tariffs.

Last week, Trump spoke by phone with Chinese President Xi Jinping for the first time since the trade conflict erupted in the spring. According to Trump, Xi signaled that he would allow exports of rare earths to the United States to resume. There was no official confirmation of this.

After the phone call, the talks in London were hastily scheduled. The meeting apparently came about so spontaneously that US Trade Representative Jamieson Greer had to cancel appointments planned for this week in New York. Greer was joined at the negotiating table by US Secretary of Commerce Howard Lutnick, a tariff hardliner for the US government. He accuses China of deliberately exploiting his country and wants to correct this perceived injustice. Lutnick was still absent from the talks in Geneva.

But US Treasury Secretary Scott Bessent, who is also in London, is pursuing more than just economic goals in the trade dispute with China. He has repeatedly stated in the past that the US must also assert its security interests. This suggests that the US may not be willing to make too many compromises.

According to the New York Times, the talks in London are scheduled for two days. No results had been reached as of Monday afternoon.