US-China Trade Truce Extended: Why Trump And Xi Still Face A Long Road To A Deal

The latest extension of the US-China trade truce has prevented another immediate escalation between Washington and Beijing, but it has done little to settle the disputes that have pushed the two countries into a wider strategic rivalry.

The two-month extension was announced as Chinese President Xi Jinping arrived in Washington for talks with US President Donald Trump, with both sides agreeing to keep some tariff relief in place, delay planned Chinese restrictions on rare-earth exports until January 10 and secure further Chinese purchases of US soyabeans. But disputes over technology, artificial intelligence, critical minerals, energy, Taiwan and trade remain unresolved.

Xi arrived in Washington, DC on Wednesday evening, with Trump personally meeting him on the tarmac. The meeting on Thursday was the first state visit by a Chinese leader to the US in 11 years and the third face-to-face meeting between Xi and Trump in less than a year.

The state visit came against a backdrop of continuing disputes over AI, rare-earth metals, Taiwan and the Iran war, while the trade war between the two countries remains paused rather than settled.

From tariff escalation to another temporary truce

Trump's second term began with a fresh escalation in trade tensions. Soon after he returned to the White House in January 2025, his administration raised tariffs on Chinese goods, accusing China of facilitating the flow of fentanyl, a deadly drug, to the US.

Beijing responded with tariffs of its own and then restricted exports of valuable rare-earth metals, which are essential to the development and manufacture of high-tech products ranging from smartphones to fighter jets.

At one stage, tariffs were heading towards 150 per cent before both sides paused the escalation to allow negotiations to continue.

Trump and Xi eventually called a truce on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit in South Korea on October 30. Trump travelled to Beijing in May for another meeting with Xi.

As Xi arrived in Washington this week, the Trump administration announced that the two countries had agreed to extend an October 2025 truce that had offered some relief from the tariffs. The latest arrangement included China's commitment to buy more soyabeans from the US and delayed a planned ban on rare-earth exports from China until January 10.

The possibility of a wider agreement had appeared to be emerging before Xi's visit. US Treasury Secretary Scott Bessent told Fox News that he had met Chinese Vice Premier He Lifeng before the summit to “see if we could ⁠do a bigger deal as opposed to just a series ⁠of smaller things”.

But, as Al Jazeera reported, analysts remain divided over whether the latest extension represents meaningful progress towards a lasting settlement.

Beijing-based Einar Tangen, a senior fellow at the Center for International Governance Innovation, told Al Jazeera: “The two-month extension isn’t a bridge to a grand bargain – it’s a temporary sandbag holding back a structural flood,”

The wider relationship now involves more than tariffs. New US sanctions targeting buyers of Russian oil, including China, have added another source of friction, while Washington and Beijing continue to impose investment and research restrictions. At the same time, the two countries are competing for technological dominance in artificial intelligence.

A pause driven by political and economic pressure

Tangen described the latest arrangement as “transactional theatre”, arguing that it provides useful optics for Trump ahead of the US midterm elections.

The US war in Iran has already created significant political and economic pressure for Trump's administration. Tangen said the conflict had damaged Trump's chances in the midterms, while Democrats are leading in polls amid concerns over rising energy costs triggered by the war launched by the US.

That gives Trump an incentive to secure progress elsewhere, including with China. But Tangen argued that the trade arrangement could be undone if its political usefulness changes.

“Success in January won’t be measured by what is solved, but by whether the knot is left tight enough to hold, but not kill,” said Tangen.

Phillippe Le Corre, professor of international relations and Asian studies at France's ESSEC Business School, also pointed to the short duration of the latest extension.

“The extensions are getting shorter and shorter, which means they haven’t found a common ground on many issues,” Le Corre told Al Jazeera.

“The two-month extension is a terrible outcome for the US. Nothing is resolved, and many Damocles’ swords are still hanging over Washington’s head,” he added.

Le Corre said Trump's China policy was short-sighted and argued that it was creating uncertainty for the wider world.

There is, however, a more cautious view of what the extension means. Sun Chenghao, a fellow at the Center for International Security and Strategy at Tsinghua University in Beijing, described the extension as a “useful interim step”.

Sun said the agreement showed that both sides wanted to preserve the recent easing of tensions and that this itself represented meaningful progress.

“From China’s perspective, a sustainable agreement needs reciprocal benefits and greater policy predictability,” Sun told Al Jazeera. “Additional purchases cannot indefinitely compensate for uncertainty over tariffs, technology restrictions and market access.”

Sun said the value of the extension would ultimately depend on whether Washington and Beijing could turn it into “concrete commitments”.

Why neither side can easily afford another trade war

There is a strong economic incentive for both governments to avoid another escalation, but the existing tariffs remain substantial.

A Congressional Research Service report in July 2026 found that Chinese goods exported to the US still faced tariffs of 36.5 per cent, while US goods entering China were subject to tariffs of 31 per cent.

Sun said further increases would raise import and manufacturing costs in the US, squeeze profit margins and increase pressure on consumer prices. They would also hurt US farmers and industrial exporters.

Those risks come as Washington is already facing the rising economic costs of the Iran war. The conflict has pushed up energy costs and contributed to pressure on US finances, with the country's national debt reaching $40 trillion two years earlier than expected.

“Washington is playing a high-stakes game of economic chicken with a $40 trillion debt load, an inflationary sword of Damocles, zero fiscal cushion to absorb a truce collapse and a dependence [on] Chinese industrial and manufacturing inputs,” Tangen said.

He warned that US consumers and the wider economy would struggle to absorb another inflationary shock caused by renewed tariffs “at a time when the federal budget already operates like a high-wire Ponzi scheme”.

The economic relationship is also being shaped by the race over artificial intelligence.

Jon Bateman, a senior fellow at the Carnegie Endowment for International Peace, says a partial “decoupling” of the US and Chinese technology ecosystems is already under way. US policymakers have sought to reduce America's dependence on Chinese technology and “to secure America’s technological future in the context of a rising China”, Bateman writes.

But the AI competition carries risks of its own. AI companies have become a major driver of global stock markets, and Tangen warned that a collapse in their valuations could have wider financial consequences.

An AI valuation collapse, Tangen warned, “could trigger a financial tsunami that makes 2008 look tame – making technological decoupling meaningless as the world is plunged into a depression”.

China's trade strength and rare-earth advantage

Despite the trade war with Washington, China's trade with other countries has increased sharply. Beijing recorded a $1.2 trillion global trade surplus last year.

An escalation with the US would nevertheless create pressure on Chinese export orders, employment in industries exposed to the US market and business confidence, Sun said.

China also retains significant leverage through its control of rare-earth minerals.

Le Corre said China holds 60 per cent of the world's known deposits of rare-earth minerals and processes 90 per cent of them. These materials are required for semiconductors, technological components and weapons manufacturing.

Beijing began using that leverage last year by restricting exports of five of the 12 rare-earth metals it mines in April. In October, China prepared to restrict seven more.

The trade truce halted those plans, but they have not been abandoned. The export restrictions remain on hold rather than being shelved permanently.

“[China] understood this over the past year and they are certainly not going to give up on this,” said Le Corre.

The dependence works in both directions, creating a contradiction at the heart of the relationship.

“Washington is hostile, but it is hooked,” Tangen said. “You cannot threaten China with secondary sanctions on energy while desperately needing its rare-earths to fuel your military-industrial base.”

What would it take to make the truce last?

The next stage of negotiations would need to address issues that go beyond temporary tariff suspensions and individual purchases.

Sun said any new tariff reductions would need greater coverage and a longer duration. A durable agreement would also require more predictable licensing and actual deliveries of rare-earths and critical minerals.

Technology restrictions would need to be restrained from expanding further, while market access would have to be reflected in regulatory approvals and completed transactions, he said.

Regular consultations and a mechanism for resolving complaints would also be necessary if Washington and Beijing were to establish an agreement capable of surviving future disputes.

The current truce could still break down if either side imposes new unilateral tariffs, expands technology or mineral restrictions, or disputes whether commitments have been fulfilled, Sun said.

Taiwan adds another major risk to the relationship. China claims Taiwan as its territory, while the US approved an $11.1bn arms sale to Taiwan in December last year.

As reported by Al Jazeera, the analysts said tensions over Taiwan could spill over into the economic relationship and undermine the trade truce.

“Taiwan remains the ultimate low-probability, catastrophic-impact tail risk – where a single round of arms sales can snap a multibillion-dollar trade truce in an instant,” Tangen noted.

Tangen argued that a lasting solution would require a change in how Washington views Beijing.

“The US view of China as an existential threat has to change before there can be solutions,” said Tangen.

Le Corre, meanwhile, contrasted China's long-term planning with the uncertainty surrounding Trump's policy approach.

While China is a long-term planner, he said, “durable is a word that can hardly be associated with Trump.”

For now, the extension has bought Washington and Beijing additional time and kept the trade truce in place. But the underlying disputes remain unresolved.

The next test is whether the two governments can turn temporary arrangements on tariffs, soyabeans and rare-earth exports into longer-term commitments on trade, technology, critical minerals and market access, while preventing disputes over Taiwan, energy and other strategic issues from spilling back into the wider economic relationship.