31 October 2025

Jonathan Sparks

Chief Investment Officer, UK, HSBC Private Bank and Premier Wealth

The long-awaited meeting between President Xi Jinping and President Donald Trump in Busan has brought a constructive turn in China-US relations. Both sides reached consensus on several key fronts, signalling renewed willingness to stabilize trade ties and support business confidence. While the deal remains a truce rather than a full resolution, it nonetheless marks meaningful progress toward a more stable policy environment.

The US announced a reduction of tariffs on fentanyl-related Chinese goods from 20% to 10%, effective immediately. This decision should help restore confidence among manufacturers and importers on both sides. For China, the easing comes at a time when exports to the US have been under pressure, while domestic demand and technology investment continue to anchor growth momentum. For the US, the move should help lower input costs and ease supply-side inflationary pressures ahead of next year’s election cycle.

In a reciprocal gesture, China agreed to suspend its planned rare-earth export controls for one year, ensuring smoother global supply chain flows. Given that China controls around 70% of global rare-earth mining and nearly 90% of processing capacity, this development provides much-needed reassurance for downstream industries including semiconductors, electric vehicles, and defense technology. Both leaders also reaffirmed their commitment to continued dialogue on technology cooperation and investment access.

The tone of the meeting was notably constructive. President Trump described it as “very warm and productive,” while President Xi emphasized that “dialogue is always better than confrontation.” Both sides agreed to maintain an institutionalized, year-on-year negotiation framework, which should help prevent future escalations and allow for periodic adjustments to evolving trade realities.

Although financial markets reacted cautiously, with the CSI 300 closing slightly lower and US futures little changed, the underlying sentiment has improved. The agreement should ease policy uncertainty, support business investment decisions, and help stabilize near-term export performance. For many Chinese manufacturers who had deferred capacity expansion in recent quarters, the policy clarity is likely to be a relief.

In our view, the announcement represents a positive step toward rebuilding trust and predictability in bilateral trade. The one-year framework on rare-earth and tariff measures provides breathing space for both sides to align on strategic priorities without disrupting global supply chains. While fundamental differences on technology and market access remain, the emphasis on constructive engagement marks a welcome shift from confrontation to coordination.

Ultimately, this truce is less about a short-term market boost and more about restoring a foundation of stability that supports global trade flows, encourages investment, and reinforces China’s commitment to pragmatic economic management.