US and China Avoid Trade Breakdown… China Suspends Export Controls on 45 US Firms

Both Countries Extend Tariff Truce by 90 Days

US Chooses Stability Over Market Chaos

Renegotiations Around Gyeongju APEC at the End of October

With President Donald Trump officially extending the tariff war truce with China, the world has at least temporarily avoided a 'trade breakdown' that could have had significant repercussions for the global economy. The tariff truce will continue until November 10, giving both countries the opportunity to resolve trade disputes through summits and other means.

On the 11th (local time), after the extension of the tariff truce was confirmed, the Chinese government suspended export control measures imposed on 45 US companies. On the 12th, the Chinese Ministry of Commerce announced that it would further defer sanctions on the export control of dual-use items against US firms. Additionally, it explained that if Chinese companies apply to trade with these firms, approval will be granted after a conditional review process.

Earlier, in the first round of high-level talks, the US and China each agreed to reduce ultra-high tariffs (145% on Chinese goods, 125% on US goods) by 115 percentage points. In the second round, the US agreed to ease technology controls on semiconductors to China, while China agreed to relax rare earth export restrictions to the US.

This extension of the tariff truce was a tentative agreement reached at the third round of high-level trade negotiations between the US and China, held in Stockholm, Sweden from the 28th to 29th of last month, but required President Trump's final approval. Observers interpret that President Trump chose to maintain the status quo rather than escalate market instability amid the negative impact of the tariff war on the US economy.

With trade tensions subsiding until November, the stage is set for the first US-China summit of the Trump administration’s second term around the Asia-Pacific Economic Cooperation (APEC) leaders' meeting in Gyeongju, Gyeongsangbuk-do at the end of October to early November. Negotiations may speed up to reach an agreement before President Trump's visit to China and bilateral summits.

President Trump wants to reduce the US trade deficit with China, so the extent to which China accommodates US demands will be key. In particular, the US is reportedly requiring China to halt imports of Russian crude oil and increase purchases of US soybeans, which may become major issues going forward. Although China agreed to increase purchases of US agricultural products, such as soybeans, during the first Trump trade war, it failed to meet actual targets.

Since the US has imposed additional tariffs on India over Russian oil imports, it may apply similar pressure to China. Close attention is being paid to how much the US will further relax controls on semiconductors and China on rare earth exports. Other topics may include a readjustment of tariffs on China imposed over illicit exports of fentanyl (synthetic narcotics), as well as US companies’ business issues in China.

Experts believe that neither the US nor China will impose further tariffs or escalate the trade war during the truce period. However, new US transshipment tariffs, tougher technology restrictions on China centered on artificial intelligence (AI) activity plans, and pressure for bulk purchases of US products are seen as obstacles to improvement in trade relations between the two countries.

Beijing = Kim Eun-jung, Correspondent kej@hankyung.com