The latest confrontation between U.S. President Donald Trump and Chinese President Xi Jinping has escalated into a high-stakes standoff, with both sides now signaling that the next move must come from the other.
The impasse threatens to reignite trade tensions between the world’s two largest economies and destabilize global supply chains already under strain from tariffs and export curbs.
After Trump initially expressed willingness to strike a deal with Beijing, U.S. Vice President JD Vance told reporters that any resolution “will depend on how the Chinese respond.”
Hours later, China’s Foreign Ministry pushed back, insisting that Beijing would act “based on Washington’s next steps,” while warning that it would “take necessary measures to safeguard legitimate rights and interests” if the U.S. persists in its current course.
The renewed friction stems from Trump’s threat to impose 100% tariffs on Chinese exports in response to Beijing’s expanded controls on rare earth elements — critical materials used in electronics, defense, and electric vehicles.
Although the tariffs are not yet formalized, analysts say the rhetoric has already unsettled trade expectations and revived memories of the 2018–2019 trade war.
Markets Absorb the Shock
Despite the rising tension, Chinese financial markets have shown resilience. The CSI 300 Index closed only 0.5% lower on Monday, suggesting that investors view the escalation as strategic posturing rather than a collapse in dialogue.
U.S. stock futures also rebounded, buoyed by hopes of renewed negotiation ahead of the Asia-Pacific Economic Cooperation (APEC) forum scheduled later this month in South Korea.
Economists at Nomura Holdings and Gavekal Dragonomics said neither side could afford a total breakdown. Nomura’s analysts noted that “too much is at stake economically and politically for both leaders,” adding that the scheduled leaders’ meeting remains likely despite public threats.
Strategic Calculations Behind the Brinkmanship
Beijing’s decision to restrict exports of rare earths — a sector it dominates globally — mirrors Washington’s long-standing restrictions on semiconductors and advanced technology exports.
Analysts say the move signals that China is now adopting Trump-style negotiation tactics: aggressive opening demands, calculated brinkmanship, and credible threats to walk away.
“China’s export sector can tolerate tariffs up to about 50%,” said Christopher Beddor, deputy director of China research at Gavekal Dragonomics. “What Beijing fears is a move beyond 100%, which would strain profitability. The rare-earth strategy is aimed at extracting concessions on U.S. tech controls without completely derailing talks.”
At the same time, Trump faces mounting domestic pressure to secure a deal before the 2026 midterm elections. U.S. farmers — a core political constituency — are urging the White House to reopen agricultural markets in China.
A breakdown could also jeopardize previously negotiated agreements, including the deal allowing TikTok to continue operations in the United States.
Race Toward a Fragile Truce
Negotiators from both countries are expected to meet in Frankfurt in the coming weeks to discuss extending the current 90-day trade truce, which expires in early November. These talks are expected to focus on reducing tariff escalation risks, revising export controls, and clarifying exemptions under China’s new rare-earth regulations.
For Beijing, a resolution would reinforce economic stability amid rising export growth and a stronger-than-expected recovery in manufacturing output. For Washington, a truce could ease inflationary pressure on imported goods ahead of the holiday shopping season — a politically sensitive period.
Still, the stalemate reflects a broader contest for economic dominance that extends far beyond tariffs. Both leaders are leveraging national interests and domestic politics to shape a deal on their own terms. As one Beijing-based analyst observed, “Neither Trump nor Xi wants to appear weak, but the longer they wait, the higher the cost to both economies.”
With neither side willing to blink first, global investors now face another period of uncertainty — where diplomacy, strategy, and politics collide at the heart of international trade.
