The United States and China are poised to resume high-stakes trade negotiations in Malaysia next weekend, signaling a possible de-escalation in their ongoing economic standoff.

The upcoming talks follow months of strained relations between the world’s two largest economies and rising tensions over rare earth exports critical to global technology and defense industries.

The meeting was confirmed by U.S. Treasury Secretary Scott Bessent after what he described as a “frank and detailed” video conference with Chinese Vice Premier He Lifeng on October 18. The discussion, which also included U.S. Trade Representative Jamieson Greer, laid the groundwork for in-person talks in Kuala Lumpur around October 26, coinciding with the ASEAN Summit. President Donald Trump is expected to attend the summit before traveling to South Korea for the Asia-Pacific Economic Cooperation (APEC) forum on October 31–November 1, where he will hold a long-anticipated bilateral meeting with President Xi Jinping.

China’s official Xinhua News Agency described the virtual exchange as “candid, in-depth, and constructive,” adding that both sides had agreed to resume economic consultations “as soon as possible.”

A Strategic Setting for Renewed Diplomacy

The decision to host the next round in Malaysia represents a shift from earlier negotiations held in European cities such as Geneva, London, Stockholm, and Madrid, where previous talks produced a fragile 90-day tariff truce that currently extends through November 10. Analysts view Kuala Lumpur as a neutral and strategic venue — a regional trade hub with close ties to both powers and recent exposure to the dispute, following the U.S. imposition of 19% tariffs on Malaysian goods earlier this year.

Rare Earths at the Center of the Standoff

Tensions have intensified since China’s Ministry of Commerce expanded export restrictions on rare earth elements on October 9 — its most sweeping controls yet. The new rules limit exports of 12 of the 17 rare earths, adding holmium, erbium, thulium, europium, and ytterbium to the restricted list, alongside prohibitions on related refining technologies and magnet production.

Foreign firms using even trace amounts (0.1%) of Chinese-sourced rare earths must now obtain licenses, while shipments to military-linked entities, including U.S. defense contractors, face outright bans.

China, which controls over 70% of global rare earth mining and more than 90% of processing capacity, insists the measures are legitimate national security safeguards to protect dual-use technologies crucial to semiconductors, electric vehicles, renewable energy, and defense systems. Washington, however, accuses Beijing of “weaponizing” global supply chains. The U.S. Geological Survey warns that disruptions could paralyze production for companies that rely on China for 70% of their rare earth inputs.

Trump Walks Back 100% Tariff Threat

In retaliation, Trump threatened on October 11 to impose 100% tariffs on all Chinese imports starting November 1, along with new export controls on key U.S. software. But hours before Saturday’s video call, he softened his tone in a Fox News interview, calling the proposed tariffs “not sustainable” while maintaining that Beijing’s policies had “forced” his administration’s hand.

“We’re talking, and I think we’ll make a deal that’s good for both,” Trump said, confirming plans to meet Xi at APEC — their first one-on-one encounter since 2019.

From Europe to Asia: A Fragile Tariff Truce

The current impasse echoes the trade war’s resurgence earlier this year. After returning to office in January 2025, Trump sharply raised tariffs on Chinese imports to 145%, prompting Beijing to retaliate with 125% duties on U.S. products. The tit-for-tat escalation crippled bilateral trade and caused widespread supply disruptions, forcing American automakers to curb electric vehicle production amid rare earth shortages.

A series of emergency negotiations in Europe has temporarily eased the US-China trade standoff, beginning with a May agreement in Geneva where both nations committed to a 90-day tariff reduction, lowering US tariffs on Chinese goods to 30% and China’s duties on US products to 10%. Subsequent rounds in London in June, Stockholm in July, and Madrid in September extended this fragile tariff truce through November 10.

The upcoming talks in Malaysia next week are now pivotal, as they will determine whether this delicate pause can be sustained or if the world’s two largest economies will revert to punitive economic measures, risking further escalation.

Global Repercussions and Calls for Restraint

Recent frictions — including delays in Chinese export licensing and new U.S. port fees imposed since October 14 — have kept tensions high. China has accused Washington of “undermining global trade rules” and pledged to escalate its complaints to the World Trade Organization, while U.S. officials denounce Beijing’s “double standards.”

The international community has urged both sides to show restraint. At the IMF and World Bank annual meetings in Washington this week, G7 finance ministers, including EU Economy Commissioner Valdis Dombrovskis and German Finance Minister Lars Klingbeil, called for coordinated efforts to diversify rare earth supplies, warning that full decoupling from China could take years.

IMF Managing Director Kristalina Georgieva expressed cautious optimism that the Trump–Xi dialogue could “cool tensions” and stabilize global markets.

Market Volatility and Investor Jitters

Markets remain volatile. Earlier this month, renewed tariff fears triggered a $2 trillion U.S. stock sell-off, a 15% plunge in Bitcoin, and $19 billion in crypto liquidations as investors fled to safe havens like gold. Oil prices rebounded 1% on October 13 amid hopes for de-escalation, but equities in technology and defense sectors — heavily dependent on rare earths — continue to swing sharply.

Social media reactions have reflected a mix of skepticism and guarded optimism. Analysts noted that cryptocurrencies have become increasingly sensitive to trade news, with one commenting: “Bitcoin acts as a hedge against uncertainty but rebounds when risks fade.”

In Malaysia, local media have expressed cautious pride in hosting the talks, while international observers underscore the stakes: “A rolling truce paused tariffs up to 145%; November deadlines loom.”

What Lies Ahead

Experts expect the Malaysia session to focus on tariff rollbacks, rare earth licensing rules, and enforcement mechanisms. A successful outcome could stabilize supply chains and pave the way for Trump’s planned 2026 visit to China and a possible Xi Jinping visit to the United States.

Failure, however, could trigger what analysts warn may become a new phase of “economic warfare,” with China’s export controls potentially “forbidding any country from participating in the modern economy.”

As delegations prepare to meet in Kuala Lumpur, the world watches closely — hoping diplomacy can preserve the fragile truce rather than ignite a new era of global disruption. (ILKHA)