US-China export controls trade truce

While headlines touted a handshake deal between the US and China in London, the underlying terms reveal a more fragmented and fragile détente. The heart of the impasse—export controls over militarily sensitive goods—remains unresolved, and the long shadow of industrial policy friction still looms over any path to normalization.

The handshake may buy both sides short-term political optics, but the architecture of a stable trade pact appears elusive. At stake is not just tariff alignment or commodity flows, but national security leverage embedded in materials supply chains and chip architectures. For regional capital allocators and sovereign strategy desks, this impasse is less about deal timing and more about systemic decoupling with tactical workarounds.

The London round of negotiations reaffirmed what policymakers already understand: trade normalization in a security-first world is conditional, not comprehensive. China’s refusal to ease export curbs on rare earths with military applications—specifically samarium magnets—signals that critical minerals will remain outside any standard trade logic.

Washington, for its part, has reaffirmed its curbs on advanced AI chip exports, citing national security. US Treasury Secretary Scott Bessent made clear there would be “no quid pro quo,” reinforcing the bifurcation of civilian and military industrial flows in US policy posture. That framing effectively locks in a dual-track export regime—one where selective approvals coexist with systemic mistrust.

Even where small concessions emerged—China’s offer to expedite export licenses for civilian US firms and introduce a six-month validity period—the policy signal is not one of liberalization. It is filtration. Beijing’s “green channel” is a mechanism of control, not an avenue of openness. Rare earth exporters like JL MAG may see technical license approvals, but the core leverage—military-critical rare earth flows—remains withheld.

This stalemate is not unprecedented. The Geneva agreement in May to ease triple-digit tariffs faltered within weeks, derailed by China’s April restrictions on critical mineral exports. That sequence—tentative easing followed by tactical restriction—has become the rhythm of the US-China economic relationship under Trump’s second term.

Moreover, the move mirrors earlier cycles from 2018–2020, when trade war de-escalation was routinely undermined by national security carve-outs. Back then, semiconductors and telecoms (Huawei, ZTE) played the role rare earths now occupy. The logic remains the same: even when trade metrics move, strategic choke points do not.

That pattern may explain why Chinese analysts, including those close to Beijing think tanks, remain unconvinced that the Aug 10 deadline for tariff reviews will produce any durable breakthrough. It also frames the Trump administration’s consideration of extending tariffs for another 90 days—not as escalation, but as time bought for legal repositioning.

Institutional actors—from sovereign wealth allocators to central bank watchers—are unlikely to treat the London handshake as anything more than an interim signal. The realignment in global capital flows that began in 2019 has already repriced exposure to China’s upstream industrial inputs.

For Singapore and GCC-based sovereign entities, the rare earth bottleneck reiterates the necessity of strategic hedging through vertical integration or third-market sourcing. Japan’s state-backed resource investments in Australia, and Saudi Arabia’s moves into downstream EV metals processing, reflect a broader recalibration that treats Chinese supply as contingent, not foundational.

Market response has been appropriately cautious. While Chinese magnet producers saw licensing progress, there is no re-rating in broader commodities or equities tied to defense-sensitive supply chains. This is not détente—it is delay.

The latest trade truce reinforces that decoupling in military-adjacent sectors is not a reversible process. Export control diplomacy now operates on a dual track: tactical access for approved partners, and structural withholding for leverage.

Washington’s tariff extensions and Beijing’s licensing filters both serve as instruments of time-buying—not resolution. Rare earths, like semiconductors before them, have become proxies for national capacity, not just commodities.

For macro-policy observers, the message is clear: this isn't convergence—it’s managed fragmentation. Sovereign actors would do well to read these signals not as a return to rules-based trade, but as institutional choreography for the next phase of geopolitical trade asymmetry.