What's next for China-U.S. trade relations after the London talks?

Editor's Note: Sun Chenghao is a research fellow at the Center for International Security and Strategy, Tsinghua University. The article reflects the author's opinions and not necessarily those of CGTN.

The recent China-U.S. economic and trade negotiations held in London resulted in a principled framework agreement aimed at easing tensions and implementing the previous Geneva consensus and the spirit of the phone call between the two leaders. After the talks, the global market responded with cautious optimism, but uncertainties still surround the specifics of the agreement's implementation and the long-term trajectory of China-U.S. relations.

The emphasis by both sides on framework and consensus, rather than a clear agreement, suggests that the negotiations were more about tactical de-escalation than the formulation of a strategic plan. Both sides remained cautious about making premature statements, viewing these talks primarily as a means of managing immediate crises and preventing further escalation, thereby buying time to address deeper disagreements.

After the talks, global markets generally reacted positively to the news, with Asian stock markets rising. However, this optimism was tempered by a cautious outlook. The market's cautious reaction and economists' predictions of continued slowdown and uncertainty indicate that volatility has become the new normal in the global economic landscape, heavily influenced by China-U.S. relations. This means businesses and investors must build greater strategic agility and resilience into their plans, moving beyond short-term market responses and preparing for longer periods of instability.

In the long term, one of the biggest obstacles to China-U.S. economic and trade relations remains the Donald Trump administration's ultimate goal of decoupling the U.S. economy from China. While a complete economic decoupling is unlikely, even selective decoupling is reshaping global supply chains. U.S. companies have been seeking to diversify their supply chains to reduce dependence on Chinese manufacturing. These companies are also well aware that no region can fully replace China's existing supply chains.

Therefore, despite significant geopolitical risks, most U.S. companies remain committed to the Chinese market. These companies are not primarily concerned with the tensions themselves but with the unpredictability of policies and rhetoric. This means that the U.S. business community will increasingly demand institutionalized dialogue and a more stable, predictable policy environment, even if potential competition persists. Their investment strategies will increasingly focus on local operations and diversification within China to mitigate external shocks.

Additionally, the core driver of the Trump administration's economic policy toward China is not just tariffs but also lessons learned from global shocks (such as the COVID-19 pandemic) that exposed vulnerabilities in supply chains, as well as Trump's rhetoric about the failure to benefit from economic globalization. This means that even if future tariffs on China are reduced, the U.S. will continue to reduce its dependence on key Chinese products such as medical supplies, semiconductors and rare earths for so-called national security reasons, and continue to promote domestic production or investments in allied countries. This is a structural shift rather than a cyclical fluctuation, meaning that regardless of short-term trade agreements, businesses must prepare for higher costs and fragmented supply chains in the foreseeable future.

Another significant challenge is that the ongoing disputes over rare earths and semiconductors are not just trade issues but represent the weaponization of economic interdependence. The U.S. views China's dominance in rare earths as a strategic tool, while the U.S. attempts to curb China's rise by imposing export controls on advanced technologies such as semiconductors and artificial intelligence software. This indicates that future trade relations will increasingly be influenced by national security concerns and zero-sum technological competition rather than purely economic efficiency. The digital iron curtain marks a fundamental division of the technological ecosystem, likely forcing other countries to choose sides and potentially leading global businesses to face higher costs and lower efficiency when navigating bifurcated standards and supply chains.

(Cover via VCG)