The United States and China reached a tentative framework agreement on Tuesday to de-escalate tensions in their prolonged trade dispute, offering temporary relief to global markets amid fears of a renewed tariff war. The agreement, formed after two days of high-level talks in London, aims to implement the Geneva consensus and recent directives from a call between President Donald Trump and President Xi Jinping.
Key components of the framework include China’s commitment to lift its recent export curbs on rare earth minerals and magnets, essential for global industries such as electric vehicles, clean energy, and defense. In exchange, the U.S. agreed in principle to ease certain export controls, including those affecting semiconductor design tools and aviation technologies. While specific measures have not been disclosed, officials on both sides confirmed that the proposals would be sent to national leaders for final approval.
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U.S. Commerce Secretary Howard Lutnick described the framework as a significant step forward in resolving core trade tensions but acknowledged that major issues remain unresolved. Chinese Vice Commerce Minister Li Chenggang echoed that sentiment, confirming mutual understanding on key points discussed in Geneva and the June 5 Trump-Xi phone call.
The ongoing trade conflict has already taken a toll, with China’s exports to the U.S. plummeting by 34.5% in May, the steepest drop since the COVID-19 pandemic. While U.S. inflation and employment data have remained relatively stable, business confidence continues to be tested amid tariff uncertainties.
A crucial sticking point in the negotiations remains the looming threat of tariff increases. If a final deal is not ratified by August 10, tariffs will automatically surge: U.S. duties on Chinese goods will climb from 30% to 145%, and Chinese tariffs on American products will rise from 10% to 125%. This scenario would reignite economic tensions and deepen the impact on global supply chains.
Despite cautious optimism, analysts warn that the framework is only a partial fix. Legal uncertainty still clouds the situation after a U.S. appeals court upheld the legality of Trump’s aggressive tariff measures, which remain suspended but legally enforceable. This ruling preserves Washington’s leverage and could affect the trajectory of ongoing negotiations.
The initial market response to the announcement was subdued. The MSCI Asia-Pacific Index edged up 0.2%, with investors largely viewing the outcome as already priced in. Experts noted that while the talks may have restored a fragile status quo, they stopped short of offering a definitive path to resolution.
The World Bank, in a report released on Tuesday, cut its global growth forecast for 2025 by 0.4 percentage points to 2.3%, citing unresolved trade tensions as a major drag on global economic performance.
As both sides prepare to take the framework back for final approval, the outcome of this agreement will likely shape the next phase of U.S.-China economic relations. For now, the threat of a full-scale trade war has been deferred, but the road to a comprehensive resolution remains uncertain.
