US-China Trade Talks: High-Stakes Push to Avert 100% Tariffs

US-China trade talks land in Kuala Lumpur this weekend with a stark objective: avoid an immediate escalation to 100% tariffs while defusing fresh Chinese export controls on rare earths that threaten critical supply chains. The meeting also seeks to keep next week’s planned Trump‑Xi sit-down on schedule, as negotiators work to restore a fragile truce that has frayed in recent weeks.

Top officials U.S. Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer are set to confer with Chinese Vice Premier He Lifeng on the sidelines of the ASEAN Summit. The session marks the fifth round of US-China trade talks since May, a marathon that has moved from European capitals to Southeast Asia amid rising urgency.

Behind closed doors, the agenda is dominated by China’s new global rare earths export controls and Washington’s response, including the possibility of sweeping 100% tariffs on Chinese imports starting November 1. With supply chains and markets on edge, negotiators are under pressure to engineer another pause that keeps goods and diplomacy flowing.

Kuala Lumpur as the next waypoint for US-China trade talks

The choice of Malaysia is both symbolic and practical. As a key Asian exporter intertwined with both economies, it highlights how policy rifts reverberate through regional trade.

Key facts heading into the US-China trade talks:

• Who: U.S. Treasury Secretary Scott Bessent and U.S. Trade Representative Jamieson Greer with Chinese Vice Premier He Lifeng
• Where: Kuala Lumpur, on the sidelines of the ASEAN Summit
• When: Talks begin Saturday
• Why now: To prevent an escalation to 100% U.S. tariffs and to ease Chinese rare earths controls
• What’s at stake: Keeping next week’s Trump‑Xi meeting on track at the APEC gathering in South Korea

The US-China trade talks have already produced temporary respites. A May session in Geneva yielded a 90‑day truce that sharply reduced tariff rates and reopened the flow of rare earth magnets, with subsequent refinements in London and Stockholm. September’s Madrid round led to a deal transferring TikTok to U.S. ownership control. But that progress was rattled weeks later by dueling policy moves.

Rare earths at the center: why they matter

China’s latest export controls require licenses for products that use Chinese rare earths or Chinese-developed refining and processing technologies. Because rare earth magnets are essential for electric vehicles, semiconductors and advanced defense systems, the curbs are a powerful lever.

On the U.S. side, the Commerce Department broadened an export blacklist to automatically include firms more than 50% owned by already-listed entities, effectively expanding restrictions to thousands of additional Chinese companies. Beijing’s October 10 controls followed, and Washington countered with warnings that allies would resist any attempt to monopolize strategic inputs.

How this intersects with US-China trade talks:

• Magnets and materials: Without relief, manufacturers face production risks for EVs, chips and weapons systems
• Timelines: License regimes create uncertainty for just-in-time supply chains
• Spillovers: Export controls can accelerate diversification efforts but raise costs in the near term

“Ultimately, I’m optimistic that at this particular meeting there will be tactical decisions to sort of extend the pause,” said Dennis Wilder, a senior fellow at Georgetown University’s Initiative for U.S.-China Dialogue on Global Issues, in an online forum hosted by CSIS. He added, “Trump won’t go to the 100% tariffs. The Chinese will back away a little bit from this idea that rare earths exports to defense sectors around the world will not happen.”

What could derail US-China trade talks now

Even with incentives to stabilize, fault lines remain:

• Tariff brinkmanship: U.S. threats of 100% tariffs as early as November 1 raise the cost of failure
• Enforcement actions: Expanded U.S. export blacklists and Chinese controls create new compliance hurdles
• Political optics: Both sides must balance domestic pressure with the need to avoid supply shocks
• Meeting risk: If no progress materializes, the Trump‑Xi meeting slated for next week could be canceled

A parallel track in Washington adds to the stakes. The administration launched a new tariff probe into China’s “apparent failure” to comply with the 2020 Phase One trade agreement, potentially creating additional legal authority for tariff increases. This backdrop raises the temperature around the US-China trade talks while offering potential levers for a negotiated outcome.

Economic stakes: supply chains, inflation and growth

The risk calculus extends far beyond diplomacy. Rare earths and high-tech inputs feed core industries across the economy, and tariff swings can filter quickly into prices.

Potential impacts tied to the US-China trade talks:

• Manufacturing: Auto, aerospace and semiconductor output depends on magnet availability
• Prices: New trade frictions risk adding to input costs for finished goods
• Investment: Persistent uncertainty can slow factory expansions and capital spending
• Diversification: Firms accelerate alternative sourcing, though at higher initial cost

Analysts note that restoring the limited truce on magnets could prevent near-term production disruptions while broader structural issues remain unresolved. A partial de-escalation would not settle deeper differences, but it could buy time and reduce volatility.

Inside the room: priorities on both sides

For U.S. negotiators, the immediate goal is to keep rare earths flowing and avoid an abrupt tariff jump. They are also expected to press China to resume soybean purchases after September’s hiatus, a move with both economic and political resonance.

For Beijing, easing enforcement friction and securing clarity on export license expectations are priorities, alongside signaling that controls are aimed at military applications rather than a blanket embargo.

What each side may seek from the US-China trade talks:

• The U.S.
  • A verifiable path to steady rare earths shipments
  • Commitments on agricultural buys to stabilize farm incomes
  • Signals that upcoming export restrictions will not broaden unexpectedly
• China
  • Recognition of its licensing regime with practical carve-outs for civilian uses
  • De-escalation on U.S. blacklist ripple effects
  • Preservation of space to manage sensitive technology exports

Philip Luck, director of the CSIS Economics Program, underscored the tradeoff: “We’re not able to get to that because we’ve got to ask them to buy soybeans, right? It’s not the core issue.” The comment reflects a view that tactical asks often displace longer-run structural debates.

Scenarios: paths out of Kuala Lumpur

Market participants are gaming three base cases from the US-China trade talks:

• Extended pause
  • Renew the 90‑day truce framework on magnets and defer 100% tariffs
  • Set up a technical channel to process export licenses faster
  • Keep the Trump‑Xi meeting on track to frame next steps
• Partial rollback
  • Narrow exemptions for civilian supply chains with defined monitoring
  • Tariff measures delayed but tied to clear compliance triggers
  • Commitments on targeted agricultural buys
• Breakdown
  • No deal; 100% tariffs move forward and license approvals slow
  • Trump‑Xi meeting canceled, volatility rises across equities, FX and commodities
  • Companies accelerate decoupling at higher cost

An extended pause would likely stabilize sentiment. A breakdown could accelerate supply-chain diversification and weigh on risk assets into year-end.

Why the venue matters: ASEAN and the middle of the map

Hosting the US-China trade talks in Kuala Lumpur underscores Southeast Asia’s role in global manufacturing and trade intermediation. Many ASEAN economies process intermediate goods that flow between China and Western markets. Flexibility or friction at the top-tier level often shows up first in regional order books, shipping lanes and factory utilization.

For Malaysia specifically, electronics and machinery exports make reliable access to inputs critical. A durable pause on rare earths restrictions and tariff escalation would be a tangible win for production planning across the region.

Washington’s new probe and the Phase One shadow

The newly announced tariff probe into compliance with the 2020 Phase One pact introduces an additional legal tool for Washington. It also complicates the optics: while the US-China trade talks aim to de-escalate, formal investigations can harden positions.

From a negotiation standpoint, the probe can serve as leverage to secure near-term concessions on magnets and agricultural buys. But it can also narrow room for compromise if it becomes a headline driver just as leaders consider whether to proceed with the Trump‑Xi meeting.

What markets and companies should watch next

Signals to monitor as the US-China trade talks unfold:

• Language on rare earth licenses: Are defense carve-outs narrowly defined with civilian channels left open
• Tariff timing: Any delay language that explicitly pushes past November 1
• Agricultural purchases: Concrete volumes and timelines for soybean buys
• Meeting logistics: Confirmation that the Trump‑Xi session in South Korea remains on schedule
• Enforcement coordination: A mechanism to keep compliance disputes from derailing supply chains

For companies, contingency planning remains prudent: map exposure to affected materials, line up alternative suppliers, and stress-test logistics. Even a positive outcome may be temporary, given how fast policy settings have shifted this year.

The bigger picture: tactical calm, strategic distance

Even a successful weekend will not settle the deeper differences that fuel frictions. The US-China trade talks are geared toward tactical stability—keeping magnets moving and tariffs contained—rather than redesigning the architecture of trade. Structural issues like industrial policy, capacity, and consumption rebalancing are unlikely to be addressed meaningfully this round.

Still, tactical calm matters. It lowers the odds of immediate shocks, supports production schedules and keeps diplomatic channels open for a more ambitious agenda later.

Conclusion: a narrow landing strip for the US-China trade talks

The Kuala Lumpur session offers a narrow landing strip for the US-China trade talks: avoid a tariff cliff, restore predictable access to rare earths and preserve a path to leader-level engagement next week. With high-profile probes and export controls in the background, the stakes are real, but so are the incentives to step back from the brink.

Should negotiators secure an extended pause or partial rollback, manufacturers and markets will exhale—at least for now. If not, the ripple effects will reach far beyond the negotiating room, forcing a faster, more expensive rerouting of critical supply chains. Either way, what happens in Kuala Lumpur will shape the next chapter of the US-China trade talks and set the tone for the broader economic relationship into 2025.

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Article Source: Reuters
Image Source: Pixels