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Trump, Xi Maneuver for Leverage as Talks, Truce Expiry Loom

(Bloomberg) --

Presidents Donald Trump and Xi Jinping are maneuvering for leverage ahead of their upcoming meeting and the expiration of a US-China trade truce, even at the risk of escalating tensions between the world’s two biggest economies.

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China this week unveiled sweeping new curbs on its exports of rare earths and other critical materials, echoing moves made in April in response to Trump’s so-called “Liberation Day” tariffs. That came as Beijing continues to eschew purchases of American soybeans, exacerbating an economic squeeze on farming communities that largely voted for Trump in 2024.

In a series of moves announced Friday, China’s Transport Ministry said it will start collecting port fees on ships owned by US companies and individuals, as well as vessels made in America. The levies will take effect Oct. 14, the same day Washington plans to start charging large Chinese ships to call at US ports. Separately, the nation’s market regulator said it has launched an anti-monopoly investigation into Qualcomm Inc. over its acquisition of Israel’s Autotalks Ltd.

Beijing’s unexpected volley followed a flurry of steps by the Trump administration targeting the world’s No. 2 economy. Besides the planned ship levies, officials in Washington have reportedly in recent days proposed barring Chinese airlines from flying over Russia on flights to and from the US, and expanded sanctions to further prevent the likes of Huawei Technologies Co. accessing restricted US goods.

Taken together, the latest moves suggest both sides are lining up bargaining chips ahead of a leaders’ meeting this month on the sidelines of the Asia-Pacific Economic Cooperation summit in South Korea. Meanwhile, a truce in a tariff fight that at one point saw US levies surge to as high as 145% is set to expire Nov. 10, unless extended.

“This hardball approach is somewhat risky and will complicate talks with the US, even if it ultimately pays off,” Julian Evans-Pritchard, head of China economics at Capital Economics, wrote in a report.

While the timing of the curbs “may be opportunistic, we suspect the new controls are mostly motivated by medium-term geo-strategic goals,” he added, characterizing the move as an attempt by Beijing to hold back foreign competitors in areas where the Asian giant wants to retain a leading role.

The danger for Trump and Xi is the path to finding an off-ramp becomes even more precarious if the US responds in kind. The Republican president already threatened to bring some of his own leverage to bear when he meets Xi, suggesting he might restrict the sale of certain products to China, without offering specifics.

“We import from China massive amounts,” Trump told reporters. “You know, maybe we’ll have to stop doing that, but I don’t know exactly what it is. Neither do you. Neither does anybody.”

Treasury Secretary Scott Bessent and Commerce Secretary Howard Lutnick would work on the issue, he added, without elaborating.

China’s control of the rare earth sector gives it key leverage in negotiations, with curbs now announced on all but five of the 17 metallic elements.

Beijing’s addition of five mid- and heavy rare earths to its export controls, on top of the seven already restricted, underscores how these materials have become a flashpoint with trade partners beyond Washington. South Korea, Japan, the US, Germany and Canada are the top five buyers of the five newly added minerals, according to China’s customs data compiled by Bloomberg.

Delays in processing export permits for rare earths earlier this year caused major headaches for companies in Europe and Asia. Rolling out sweeping new curbs will likely unleash a bureaucratic burden for officials that could reignite tensions, if more hold-ups ensue and threaten to halt production lines.

Heavy rare earths are almost exclusively produced by China and essential for advanced technologies, powering high-performance magnets, semiconductors, and precision military systems. China wields disproportionate influence over downstream industries with its dominance of the complex separation and refining capacity.

Xi’s ability to inflict further pain, however, might be limited. The five elements still exempt from China’s controls are largely light rare earths, which are more abundant, easier to mine and refine, and less strategically constrained than their heavier counterparts.

Despite the hostilities, Beijing has signaled a willingness to reengage with Washington. Speaking on the sidelines of the United Nations General Assembly in New York last month, Premier Li Qiang said the two giant economies “can and should become friends and partners.”

China is also pushing the Trump administration to roll back national security restrictions, reportedly floating a potential $1 trillion in investments. That would dwarf commitments from the European Union, Japan and South Korea.

A resumption in Chinese purchases of US farm goods is perhaps the easiest concession Beijing can make. “He’s got things that he wants to discuss with me,” Trump told reporters at the White House on Thursday, “and I have things that I want to discuss with him. And one of the things is soybeans.”

From the US side, lowering the 20% tariff on Chinese goods related to the opioid crisis could be a low-cost card for Trump to play.

Key talking points could also range from export controls and China’s purchase of US goods to its opening up of the services sector, Citigroup Inc. economists including Yu Xiangrong wrote.

“Both US and China could be strengthening their leverage in trade talks,” they said. “The tariff truce between the two countries, though fragile, could continue, as a hard trade decoupling was shown to be undesirable for both sides earlier this year.”

--With assistance from Fran Wang, James Mayger and Jessica Zhou.

(Updates with investigation into Qualcomm in third paragraph)