Trump and Xi Buy Time on Trade With Neither Able to Afford a Fight

(Bloomberg) -- Donald Trump and Xi Jinping agreed to maintain a trade truce until early 2027, with neither ready to upend relations between the world's biggest economies even as tensions persist over rare earths, technology curbs and Taiwan.

Just as Xi landed in the US on Wednesday, Treasury Secretary Scott Bessent announced that an agreement struck by the leaders last year will now run an additional two months until Jan. 10. That removes much of the tension around Xi's first state visit to the US since 2015, and clears the way for two more meetings between the presidents planned in the coming months at summits in Shenzhen and Miami.

Still, the brief extension shows that the "constructive strategic stability" underpinning the relationship remains fragile. The US has accused China of failing to live up to pledges to provide a steady flow of rare earths, while Beijing remains confident that its grip over the elements crucial to defense and high-tech manufacturing will deter Trump from reimposing sky-high tariffs.

"We can live with that because we are confident that within two months the US cannot become independent of Chinese rare-earth supply," said Wu Xinbo, director of Fudan University's Center for American Studies and a former adviser to China's Foreign Ministry. "They'll come back and beg for Chinese exports of rare earth magnets to the US."

News of the extension appeared to reduce the immediate risk of a supply disruption, hurting shares of companies seeking to provide alternatives to Chinese rare earth supplies. Toyo Engineering Corp. slid about 9% in Tokyo and Australia's Lynas Rare Earths Ltd. fell as much as 5%. The broader markets showed little enthusiasm, with China's benchmark CSI 300 Index falling 1.7% and MSCI's gauge of Asian stocks dropping 0.8%, also pressured by elevated oil prices and US bond yields.

Bessent on Wednesday met with his Chinese counterpart He Lifeng in Washington to hammer out the terms, building from talks held in New York last weekend. Even so, the US treasury secretary made his displeasure clear while announcing the truce.

"There are some deliverables that have not been perfect on the Chinese side," Bessent told Fox News. US officials had spelled out their expectations and now wanted to see if Beijing "could be a bit more fulsome in enacting the agreement" in the coming months.