The Trump-Xi Deal Is Not a Deal but a Truce with Hidden Risks

U.S. President Donald Trump and Chinese President Xi Jinping finally met in Busan, South Korea, for long-awaited talks aimed at easing trade tensions. If that was the objective, it was narrowly achieved: the U.S. “fentanyl tariffs” on China were halved—from 20% to 10%—bringing Chinese tariff levels closer to those of other Asian economies. In return, China agreed to resume imports of American soybeans—hardly a breakthrough—and, more importantly, to lift the new export controls on rare earth elements (REEs) announced in October. These covered five additional REEs and extended existing restrictions. However, the earlier controls announced in April—on seven REEs, including gallium and germanium, both critical for the defense and semiconductor industries—remain firmly in place. In other words, Trump has not managed to turn back the clock on REEs, leaving China with a potent strategic lever for future disputes.Still, China’s upper hand in this deal is more limited than it might have hoped. Reports suggest that Xi wanted to raise the Taiwan issue and secure a U.S. assurance against supporting Taiwanese independence—something that did not materialize. Beijing also pushed for Washington to lift export controls on Nvidia’s latest advanced chips (the Blackwell B30A), but Trump appears to have stood firm. Finally, the fact that the agreement carries a one-year expiration date underscores its fragility. Based on precedent, it could unravel sooner—and abruptly—should either side choose to withdraw. Nonetheless, to buoy markets that had been expecting more substantial progress on market access or Chinese investment in the U.S., Trump announced that he would visit Beijing in April.Against this backdrop, markets have reacted with justified caution to what looks less like a breakthrough and more like a temporary truce. Yet investors may still be underestimating the risks of Trump’s shift from economic to hard-power coercion. Hours before meeting Xi, Trump reportedly ordered the Pentagon to resume nuclear testing—a move without precedent since 1992. While this decision could be read as a response to Russian President Vladimir Putin’s nuclear-capable missile tests in the Arctic on October 28, Trump’s warning extended beyond Moscow. His words were chilling: “Anyone thinking of testing us with nukes will find out what American resolve really means—from Moscow to the mainland, no one’s exempt.”This shift should not surprise observers, though it remains deeply unsettling. China has been expanding its nuclear arsenal, partly through its “limitless” cooperation with Russia, but the U.S. still maintains clear superiority in nuclear capabilities—an advantage Trump may seek to use to tighten alliances. Two recent announcements reinforce this interpretation: the revival of the AUKUS deal with Australia and the promise to deliver a nuclear submarine to South Korea, both made just before the Busan meeting.All in all, the summit avoided the worst outcomes—no direct clash over Taiwan, no new technology transfers of advanced chips—but it still revealed U.S. vulnerability in using economic pressure against China. The American gains are minimal (soy exports and a partial reprieve on REE restrictions) and come at the cost of exposing its economic dependence on China. Meanwhile, China retains its supply-chain advantage, though with heightened awareness that the stakes—and the mutual mistrust—are higher than ever. The most consequential outcome of the Trump–Xi meeting may ultimately be the acceleration of an arms race, including in the nuclear domain. Putin’s ongoing war in Ukraine is hardly stabilizing the picture, nor is North Korea’s Kim Jong Un, whose recent missile launch coincided with Japanese Prime Minister Sanae Takaichi’s visit.In sum, the Trump–Xi encounter in Busan was pragmatic but precarious. It may have given China a short-term tactical edge, but Trump’s pivot toward overt military signaling marks a far more dangerous phase—one that bodes ill for China, the United States, and the world at large.