U.S. and China extend tariff truce deadline for another 3 months

President Trump extended a truce between the U.S. and China on tariffs, a move that could potentially set the stage for a summit with Chinese leader Xi Jinping later this year.

With hours left on the clock before the looming midnight Tuesday deadline, Trump’s executive order acknowledged that China was taking “significant steps” toward addressing American concerns on “economic and national security matters.” Beijing announced the truce extension at the same time.

Allowing the truce to expire would have sent tariff rates for both countries skyrocketing, dealing a major blow to trade between the world’s two largest economies. The U.S. will keep its standard tariff rate on Chinese goods at 30%, and China will keep its own rate on American goods at 10%.

The extension gives the two sides a further 90 days to iron out their differences on a range of issues as Trump seeks to reshape the global economy in favor of bringing manufacturing back to the U.S. It also arrives as the U.S. announces several trade agreements with countries including South Korea and Japan on the one hand, while it levies steep tariffs on several nations on the other — for example, Trump has threatened to raise U.S. tariffs to 50% on Indian exports to the U.S. later in August, due to that country’s continued purchases of Russian oil.

“Today’s news all-round stabilizes the situation, increases confidence for American consumers, for importers of goods who sell those goods in the U.S., and for manufacturers in China,” said David Meale, the head of Eurasia Group’s China Division and a former diplomat and deputy chief of mission for the U.S. Embassy in Beijing. “I think it is very likely the U.S. and China will come to some kind of trade arrangement, and the next steps are likely to be driven by the prospect of a leaders’ meeting between President Trump and President Xi later this fall.”

Meale says he thinks the next steps for both sides will involve more meetings between trade and economic officials like the ones held in Stockholm last month, to lay the groundwork for an eventual face-to-face meeting and a more concrete trade agreement which could be signed before the latest truce expires on Nov. 10.

Shortly following his inauguration, Trump relaunched a trade war that he started in his first term, announcing tariff hikes on China. Beijing responded with its own reciprocal tariffs and export controls on rare earth minerals such as bismuth and tungsten, which are a crucial component of most electronics. A series of rate hikes and responses continued through March and April, with U.S. tariffs on Chinese imports ultimately reaching 145%, and China’s tariffs for U.S. exports climbing to 125%.

At a meeting in Geneva in May, however, tensions cooled when the two sides announced a 90-day truce, with both countries lowering tariff rates and easing other trade barriers including deliveries of Chinese rare earth minerals. But both sides soon accused the other of failing to honor the terms of the agreement.

The two sides held two days of talks in Stockholm last month but left without agreeing to a deal. Following the talks, U.S. Treasury Secretary Scott Bessent told CNBC he believed the U.S. and China had reached “the makings of a deal” and that “There’s still a few technical details to be worked out on the Chinese side between us. I’m confident that it will be done, but it’s not 100% done.” Bessent added that the final decision on approving any deal lay with President Trump.

Negotiations between the U.S. and China have been complex and included several issues, ranging from American concerns about Chinese overproduction and purchases of Russian oil to Chinese complaints about Washington’s decision to limit exports of semiconductors that China needs to power AI systems.

Meale says the American priority for these negotiations will be to lower its trade deficit with China, to secure and diversify its supply chains away from reliance on China and to make sure the flow of rare earth minerals from China will be stable. There will be significant tariffs on Chinese goods entering the U.S. “when this is all over,” Meale predicts.

China, Meale says, is “looking for stability” in its relationship with the U.S., as it faces a slower-growing economy and seeks a more predictable environment for its businesses. Meale says China will also try to maintain its access to American technologies like higher-end semiconductors and jet engines.

Nicholas Lardy, a nonresident fellow at the Peterson Institute for International Economics, also says a final U.S.-China trade deal may include easing of technology restrictions, and a less likely possibility might be Chinese promises to invest in U.S. manufacturing. Lardy adds that even if both sides make progress and reach a deal, in Trump’s vision, “bilateral trade would shrink considerably, beyond what we have already seen.”

Although the truce relieved the worst of the trade tensions, trade between the U.S. and China has demonstrably fallen since early this year. China’s July export data showed its exports to the U.S. had fallen year-over-year for the fourth month in a row, and China’s imports from the U.S. fell by 10.3% from the January to July period.