Key Takeaways
- Negotiations between the U.S. and China continued into a second day Tuesday.
- The two sides seek to lower trade barriers they’ve imposed on one another in tit-for-tat fashion in recent months.
- Industries in both countries have been damaged by restrictions on the flow of crucial materials.
- Financial markets have been buoyed by the prospect of reduced trade tensions.
High-stakes trade negotiations between the U.S. and China continued into a second day Tuesday, as both sides sought to defuse a trade war that threatens both economies.
Talks in London led by U.S. Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng continued into the night Tuesday, Bloomberg reported, citing Treasury Department officials. The two sides were hammering out technical details of an agreement, according to reports.
The ongoing talks between the two economic superpowers reassured investors, boosting stocks, on the prospect of lowering the tit-for-tat trade barriers the two countries have put up in recent months. A key aim for the U.S. is restoring access to Chinese rare earth minerals used to make batteries and advanced electronics. In return, the U.S. reportedly could lift restrictions on exporting jet engine parts, computer chip design software, and other high-tech items to China.
The two countries have also imposed high import taxes on one another, although some of those are paused while negotiations continue. A breakdown in talks could threaten industrial supply chains in both nations, and cause price hikes and shortages for U.S. consumers, according to trade experts.
Ironically, the favorable reaction of the stock market to the talks could carry its own risks, according to David Folkerts-Landau, Group Chief Economist at Deutsche Bank.
“One key concern is that the Trump administration, buoyed by the market rebound, may resume aggressive tariff rhetoric—potentially triggering renewed retaliation from China and Europe, as seen earlier this year,” he wrote in a commentary.
Meanwhile, the administration of President Donald Trump is pursuing trade deals with multiple other countries. Less than a month remains until Trump’s 90-day pause on his “Liberation Day” tariffs expires, which would raise tariffs to double-digit levels on dozens of U.S. trading partners. The outlook for trade talks has become cloudier in recent weeks, as U.S. courts first ruled that many of the tariffs were illegal, only to have another court allow them to proceed while lawsuits play out.
Economists have warned the U.S. economy could fall into a recession if tariffs are restored to the high levels Trump announced April 2.