The United States and China have confirmed a 90-day extension of their trade truce following "productive" negotiations, temporarily keeping tariffs steady until November. The agreement averts the risk of renewed escalation and reflects apparent progress on several fronts, though the prospect of a comprehensive settlement remains uncertain.
The extension "removes a source of uncertainty," with talks advancing on issues ranging from rare earth exports and semiconductor controls to agricultural trade. Rare earth exports from China surged to $197.8 million in June, up from $92.8 million in May after tighter restrictions were eased, underscoring their role as "a key bargaining chip for China in trade talks, given China's large share of the global market."
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On US technology controls, an announcement of a potential deal allowing chip sales to China in exchange for a share of revenues signals "a notable shift on this front." Meanwhile, agricultural trade remains a focus, with US President Donald Trump urging China to quadruple soybean purchases, echoing targets from the 2018–2019 trade war.
Progress has been more limited on the fentanyl issue, which had been the justification for this year's early tariff hikes. However, in July, US Commerce Secretary Howard Lutnick outlined a strategy to "draw a line" between economic interests and strategic competition. Above this line, advanced products and technologies would remain off-limits, but Washington aims to "ramp up business below the line", a more pragmatic stance that "gives hope that the US and China can at least find some common ground rather than accelerating the decoupling trend of recent years."
Both sides have felt the sting of tariffs. "The experience in April and May showed that exorbitantly high tariffs damage both economies," the analysis notes. While a "grand bargain" remains elusive, a rolling truce "to keep dialogue open and avoid re-escalation seems one of the better-case scenarios."
The tariff disadvantage for Chinese exporters has narrowed after reciprocal tariff hikes in August increased duties for many economies from 10% to between 15–40%. This "narrowed tariff differential could improve the competitiveness of Chinese exports lacking substitutes moving forward."
Despite tariffs, Chinese exports have proven resilient in 2025 thanks to stronger demand from non-US markets. The fastest-growing export categories are less reliant on the US, softening the blow. Nonetheless, Chinese exports to the US have fallen 12.5% year-on-year in the first seven months, with an even sharper 23.3% drop between April and July. Sectors such as footwear, furniture, and toys, where the US accounts for over 15% of total exports, have posted negative growth.
Overall, "the drag has been significant but less than many market participants had feared year-to-date," and exports "remain on track to contribute solidly to growth this year."
This extension may be a pause rather than a pivot, but for now, it offers both sides breathing space in an increasingly complex global trade environment.
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