US-China Trade Talks Resume as Markets Eye Rare Earth Mineral and Tech Restrictions

US-China Trade Talks Take Center Stage

On Monday, June 9, the US and China resumed trade talks in London. Key US and Chinese officials met to resolve a trade war that escalated into blockade tariffs on Chinese and US goods. Easing trade tensions, including a 90-day trade war truce, allowed both sides to meet. However, since the truce, both sides have thrown accusations of truce breaches, suggesting potentially heated negotiations.

Two key focal points include rare earth mineral exports to the US and Trump’s restrictions on semiconductors and other tech-related goods associated with AI. Although both sides accused each other of breaching the truce, President Trump and China’s President Xi Jinping held a call last week, facilitating this week’s trade talks.

Notably, China extended an olive branch ahead of Monday’s talks, granting rare earth mineral export permits to US auto suppliers. The move boosted optimism about a trade agreement.

Key attendees to Monday’s talks included US Treasury Secretary Scott Bessent, US Trade Representative Jamieson Greer, US Secretary of Commerce Howard Lutnick, Chinese Vice Premier He Lifeng, Chinese Commerce Minister Wang Wentao, and China’s International Trade Representative and Vice Minister of Commerce Li Chenggang.

Talks lasted six hours and will resume on Tuesday, June 10. CN Wire reported comments from US National Economic Council Director Hassett, stating:

“Absolutely expecting progress from US-China talks. US-China meeting today to be short, but bear results. Expecting China to release minerals US needs US to release export controls if China talks go well.”

Economists Skeptical About a Deal

Despite the optimism that the US and China can reach a favorable agreement, some economists believe a meaningful trade agreement will be elusive. Alicia Garcia Herrero, Natixis Asia Pacific Chief Economist, commented:

“While a temporary truce on export controls might be reached, a meaningful agreement remains unlikely.”

Economic Divergence Concerns Mount

While trade talks will take center stage on June 10, economists and market analysts have raised concerns about the US’s and China’s economic divergence. Herrero commented:

“We need to pay attention to the persistent deflationary pressures in China and creeping inflation in the US, underscoring ongoing economic divergence.”

Inflation and trade data from China drew significant interest on June 9 before trade talks resumed. Consumer prices fell 0.1% year-on-year (YoY) in May, matching April’s decline, while producer prices slid 3.3% (YoY) after falling 2.7% in April.

East Asia Econ remarked on the inflation data, stating:

“China – PPI pulls inflation down further. CPI was surprisingly firm in May, with core continuing to show a reversal from the deflation of 2024. Overall, however, normal indicators remain very weak. Leads for core have started to deteriorate again, and PPI deflation accelerated in May. The GDP deflator will be negative once again in Q2.”

Trade data underscored the impact of tariffs on demand for US goods, underscoring the significance of this week’s trade talks.

Exports rose 4.8% YoY in May, down from 8.1% in April, while imports slid 3.4%, accelerating from a 0.2% drop in April. Trade terms with the US drew particular interest.

East Asia Econ commented on May’s trade data, stating:

“China – sharp drop in exports to the US continues. Overall trade trends – strong exports, weak imports, and a big trade surplus – remain in place. But the Trump tariffs are causing big shifts in the structure of exports. Direct shipments to the US have fallen 40% this year, and excluding the pandemic, haven’t been this low since 2013.”

Markets Eye London as Trade Deal Uncertainty Lingers

On Tuesday, June 10, Hong Kong and Mainland China markets showed a muted reaction to overnight trade developments. Mainland China’s CSI 300 and Shanghai Composite Index climbed 0.18% and 0.12%, respectively, while the Hang Seng Index gained 0.18% in early trading.

However, despite the ongoing US restrictions targeting China’s advancements in AI and tech, the Magnificent 7 continues to underperform China’s tech sector. The Roundhill China Dragons ETF is up 21.91% year-to-date, while the Roundhill Magnificent Seven ETF is down 2.11%.

The continued divergence highlights market views on China being able to advance in the tech and AI space despite the US restrictions.

Outlook

With US-China trade talks entering a second day, Hong Kong and Mainland China markets remain exposed to trade headlines. A truce on trade restrictions on tech and rare earth mineral exports and the removal of tariffs could trigger broad-based gains. However, a breakdown in talks and retention of tariffs and restrictions may fuel a flight to safety, impacting regional stocks.

Follow our coverage as US-China tech tensions reshape global markets and consult our economic calendar.