The U.S.-China trade truce agreed to by President Donald Trump and Chinese President Xi Jinping will walk back a recent escalation of export controls over chips on the U.S. side and sweeping controls on rare earth minerals from Beijing. The U.S. also exchanged reduced tariffs for soybean purchases and efforts to curb shipments of fentanyl precursors.
But it’s not clear if the deal will lead to a rollback of the chip and rare earth export controls that were in place before the latest flare-up of trade tensions. China had already halted its rare earth shipments to the defense industry before its sweeping Oct. 9 export-control regime. Trump floated the possibility of allowing Nvidia (NVDA) to sell its Blackwell AI chip in China, but told reporters that the two leaders didn’t discuss Nvidia’s new chip.
Rare earth stocks including MP Materials (MP) and USA Rare Earth (USAR) initially rose on Thursday morning but mostly reversed lower after the open. Nvidia fell in volatile trade after surging this week to top a $5 trillion valuation.
Scope Of Trump-Xi Rare Earth Deal
“Rare earth issue has been settled,” Trump said after the meeting. He added that China was deferring its rare earth export controls for one year, but that extensions could be renegotiated. For its part, the U.S. paused an expansion of chip export controls that would extend to subsidiaries at least 50%-owned by companies within China.
The terms agreed to at the Trump-Xi meeting suggest that Beijing will continue to use its rare earth dominance as negotiating leverage, but doesn’t want to inflict economic damage on the U.S. or other trading partners.
Still, there’s no indication that Beijing will ease up on its rare earth restrictions for the defense industry. After the U.S. and China agreed to a trade truce in June, Trump posted on Truth Social, “FULL MAGNETS, AND ANY NECESSARY RARE EARTHS, WILL BE SUPPLIED, UP FRONT, BY CHINA.”
Yet Reuters reported a few days later that U.S.-China trade talks in London had failed to unlock exports of rare earth magnets for specialized national security needs. According to the Center for Strategic and International Studies (CSIS), rare earths are indispensable for RTX‘s (RTX) Tomahawk missiles, Lockheed Martin‘s (LMT) F-35 fighter jet, Virginia- and Columbia-class submarines, Predator drones and more.
A one-year reprieve on rare earth export controls, particularly if it doesn’t extend to defense, won’t dissuade the U.S. from aggressively moving to set up a non-China supply chain for rare earths and other critical minerals.
Still, the investment thesis centers around government support, like that provided to MP Materials, making the U.S its biggest shareholder. The Defense Department also set a long-term price floor at double the prevailing price for rare earth oxide used to produce rare earth metals and magnets. Until that support is spelled out, rare earth stocks will be highly volatile.
Taiwan, Nvidia Blackwell Chip Not Discussed
Trump said neither the status of Taiwan nor potential sales of Nvidia’s new chip in China were discussed in his meeting with the Chinese leader. That suggests the two sides agreed to step back from the brink of a destructive escalation of the trade war, but haven’t begun to work through the divisions underlying their competition for technological and military supremacy.
In that sense, the U.S.-China agreement appears much like the phase one trade deal Trump struck in 2019 that never reached phase two.
It appears that Trump gave up more than Xi, cutting in half the 20% tariff he applied on all Chinese imports due to China’s role in the fentanyl trade. Reducing that by 10% rewarded Beijing for its efforts and commitment to crack down on shipments of fentanyl precursors.
That reduction still leaves a top U.S. tariff rate of 47.6% on Chinese imports, though electronics such as Apple (AAPL)’s iPhone, which were spared from tariffs imposed in Trump’s first term, face a lower rate.
Rare Earth Stocks
MP Materials slipped 0.5%, while USA Rare Earth fell 4.7% and American ResourcesAREC 5.4%. The group has seen sharp losses that followed weekend news of a U.S.-China rare earths deal. However, some rare earth plays are higher on Thursday, including Critical MetalsCRML, which rose 8.5%, and NioCorp Developments, which gained 2.9%.
Nvidia lost 1.9% after surging 11.2% so far this week.
Apple, which will face a smaller bite on U.S. imports of China-made products, dipped 0.1%.
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