The global economy has recently witnessed a new escalation in tension between the United States and China, after US President Donald Trump threatened a few days ago to impose additional 100% customs duties on Chinese imports starting next month, in response to Beijing tightening its restrictions on exports of rare earths, which are essential for advanced industries and modern technologies.
In light of this escalation, the global economy stands at a critical crossroads, as the trade war between the two largest economies in the world is no longer just a bilateral dispute, but has turned into an economic earthquake that reshapes global supply chains, and threatens to increase inflation rates and undermine investor confidence in international markets.
The Trump-Xi meeting is a pivotal event
The upcoming meeting between US leader Trump and his Chinese counterpart, Xi Jinping, on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit on Thursday comes as a pivotal event, as attention is turned to the understandings or negotiations that could result from it that might restore some balance to the economic relations between the two countries, with implications for the financial and gold markets and the entire global economy.
The US President said that he “will come out with an agreement” when he meets the Chinese leader, and he explained to reporters after his visit to Malaysia to attend the Southeast Asian Nations (ASEAN) Summit, where he reached preliminary trade agreements with Malaysia, Thailand, Cambodia and Vietnam: “I have great respect for President Xi… I believe that we will come out with an agreement.”
This statement comes after American and Chinese officials reached an initial agreement that spares both sides the threats of huge customs duties and trade restrictions, while the leaders of the two largest economies in the world prepare for a meeting, the first of its kind since 2019.
“This is not just photo-op diplomacy,” said Stephen Innes of SBI Asset Management. Behind these displays, senior trade officials in Washington and Beijing have quietly laid out a framework that could prevent the world’s two largest economies from competing strongly again, according to the British newspaper The Telegraph.
Features of agreement
US Treasury Secretary Scott Besent and US Trade Representative Jamieson Greer concluded two days of intense negotiations with Chinese Deputy Premier He Feng and trade negotiator Li Qinggang, as the two sides announced that they had reached preliminary consensus on a number of key issues.
This development comes ahead of the upcoming meeting between Trump and Xi, which gives the meeting exceptional importance in the course of economic relations between the two countries.
According to multiple sources, including “The Guardian,” “NBC News,” “BBC,” “CNN,” and the “Politico” platform, the two sides reached a framework that includes a number of basic items:
- Rare earth metals
The framework includes arrangements that allow China to postpone expanded export controls on rare earth metals and magnets, which were scheduled to take effect on December 1.
These restrictions have raised concerns about supply chain disruptions across industries from smartphones to electric vehicles and defense technology, and Besant said the agreement indicates China will “postpone” these controls for a year, as part of a temporary trade truce.
- 100% customs duty
The US Treasury Secretary stated that the threatened 100% tariffs on Chinese imports are no longer on the table, in what is considered a radical shift from the escalatory approach that characterized the past weeks, stressing that the new framework paves the way for a more stable phase in trade relations between Washington and Beijing.
- Agricultural trade
Besant pointed out that China has agreed to buy large quantities of American soybeans, which represents a relief for American farmers who have suffered a sharp decline in exports to China over the past seasons.
Negotiators have finalized details of TikTok’s operations in the United States, ending a dispute that has continued since the platform faced conditions for selling its American assets.
Picent explained that the agreement includes a “final agreement” regarding the sale of “Tik Tok,” and that the details will be ready for Trump and Xi to sign during their meeting.
The two sides reached a preliminary agreement on enhancing cooperation to stem the flow of precursor chemicals used in illicit drug production into the United States.
China’s chief trade negotiator Li Qinggang said that the two sides reached a “preliminary consensus” that will later be subject to internal approval procedures, noting that the consultations were “intensive and constructive.”
The impact of the expected agreement on the global economy
The agreement between the United States and China will have a significant impact on the global economy. Nigel Green, CEO of DeVere Group, said that the agreement “embodies what the markets have been waiting for,” adding that it is the catalyst that “moves everything at once,” according to the “News Ghana” platform.
Green believes that this framework represents a turning point in the global economy, as supply chains have been subject to uncertainty for months, but now manufacturers and markets have a clear path forward, with broad repercussions expected from semiconductors and shipping to basic commodities and emerging market debt.
US and Asian stocks jump to record levels
US stocks jumped to record levels in pre-market trading, amid expectations of a trade agreement between China and the United States.
Optimism led to a decline in safe assets such as gold, and the strengthening of global stock markets. Shares of Chinese companies listed in the United States, including Alibaba and JD.com, rose by more than 2.3%, BDD by 1.9%, and Baidu by 5%, while the Dow Jones Industrial Average rose 0.5%, the Standard & Poor’s 500 by 0.8%, and the Nasdaq 100 by 1.1%, according to the newspaper “The Telegraph.
This coincided with a rise in Asian stocks as well, as the Japanese Nikkei 225 index exceeded 50,000 points for the first time, while the European STOXX 600 index and the FTSE 100 stabilized in London, and the German DAX rose 0.15%, according to the Euro News platform.
The dollar rises and gold falls
Following the announcement of the initial agreement, the dollar rose to its highest levels in more than two weeks against the yen, making gold more expensive for holders of other currencies.
Capital.com analyst Kyle Rodda said that the potential trade agreement between the United States and China “came unexpectedly and brought a positive surprise to the markets, but in return it was negative for gold.”
He added that the factors that stimulated gold’s rise have now disappeared, with market sentiment stabilizing, explaining that the only reason that may support gold in the future is the possibility of continuing accommodative monetary policies.
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