US and Chinese officials meet in London for pivotal trade talks

Top US and Chinese officials were meeting in London on Monday to try and defuse a high-stakes trade dispute that has widened from tariffs to restrictions over rare earths, threatening a global supply chain shockand slower economic growth.

On the first of likely two days of talks, officials from the two superpowers were meeting at the ornate Lancaster House to try to get back on track with a preliminary agreement struck last month in Geneva that had briefly lowered the temperature between Washington and Beijing.

Since then the US has accused China of slow-walking on its commitments, particularly around rare earths shipments.

White House economic advisor Kevin Hassett said on Monday that the US team wanted a handshake from China on rare earths after Donald Trump said Xi Jinping had agreed to resume shipments in a rare call between the two presidents last week.

"The purpose of the meeting today is to make sure that they're serious, but to literally get handshakes," Hassett, director of the National Economic Council, told CNBC in an interview. He said the US would expect export controls to be eased and rare earths released in volume immediately afterwards.

The talks come at a crucial time for both economies, which are showing signs of strain from Trump's cascade of tariff orders since his return to the White House in January.

Customs data showed that China's exports to the US plunged 34.5 percent year-on-year in May in value terms, the sharpest drop since February 2020, when the outbreak of the COVID-19 pandemic upended global trade.

In the US, business and household confidence has taken a pummelling, while first-quarter gross domestic product contracted due to a record surge in imports as Americans front-loaded purchases to beat anticipated price increases.

But for now, the impact on inflation has been muted, and the jobs market has remained fairly resilient, though economists expect cracks to become more apparent over the summer.

Attending the talks in London will be US Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick and US Trade Representative Jamieson Greer, and a Chinese contingent helmed by Vice Premier He Lifeng.

The inclusion of Lutnick, whose agency oversees export controls for the US, is one indication of how central rare earths have become. China holds a near-monopoly on rare earth magnets, a crucial component in electric vehicle motors.

Lutnick did not attend the Geneva talks at which the countries struck a 90-day deal to roll back some of the triple-digit tariffs they had placed on each other.

POSITIVE CONCLUSION

The second round of meetings comes four days after Trump and Xi spoke by phone, their first direct interaction since Trump's Jan 20 inauguration.

During the more than one-hour-long call, Xi told Trump to back down from trade measures that roiled the global economy and warned him against threatening steps on Taiwan, according to a Chinese government summary.

But Trump said on social media the talks focused primarily on trade led to "a very positive conclusion," setting the stage for Monday's meeting in the British capital.

The next day, Trump said Xi had agreed to resume shipments to the US of rare earths minerals and magnets, and Reuters reported that China has granted temporary export licenses to rare-earth suppliers of the top three US automakers.

China's decision in April to suspend exports of a wide range of critical minerals and magnets upended the supply chains central to automakers, aerospace manufacturers, semiconductor companies and military contractors around the world.

White House spokeswoman Karoline Leavitt told the Fox News program "Sunday Morning Futures" that the US wanted the two sides to build on the progress made in Geneva in the hope they could move towards more comprehensive trade talks.

The preliminary deal in Geneva sparked a global relief rally in stock markets, and US indexes that had been in or near bear market levels have recouped the lion's share of their losses.

But Ian Bremmer, president of the Eurasia Group, said while a temporary truce was possible, there was little prospect for the bilateral relationship to become constructive given broader decoupling trends and continued US pressure on other countries to take China out of their supply chains.

"Everyone around Trump is still hawkish and so a breakthrough US-China trade deal is unlikely, especially in the context of other deals that are further along and prioritised," he said in an analyst note.