After months of uncertainty, financial markets have welcomed last week’s US-China trade deal. But a look behind the scenes suggest that much of this was a fait accompli, whereas other areas of friction remain under the radar.

Trade deal announced

Financial markets have been on tenterhooks ever since President Trump announced that he would be meeting his Chinese counterpart Xi Jinping to finalise months of fractious trade negotiations.

In fact, President Trump had already alluded to a positive outcome in the days running up to last Friday’s meeting. As a result, markets rallied last week with the CSI 300 reaching its highest level since March 2022 and the SSE Composite Index climbing to a decade high.

But so far, details of the trade deal remain sparse. We only know that the tariff on goods related to the production of fentanyl will drop from 20 to 10 percent, thereby lowering overall tariffs from 57 to 47 percent. In return, China has agreed to pause its controls on rare earth exports for at least a year, and resume “substantial” purchases of US-produced soybeans which they had halted since May this year.

But the trade war continues

In fact, much of the groundwork had been done when US Treasury Secretary Scott Bessent met with China Vice Premier He Lifeng earlier, so these revelations were already well-known. But the above agreements aside, both Chinese and US officials are silent on two key areas of dispute – US controls on the export of advanced technology to China, and China’s “chokehold” on the world’s rare earth elements.

Despite suggestions of easing US-China trade tensions, both the US and China have dug in their heels on these fronts. At the end of September, the US significantly expanded its export controls to subsidiaries which are at least 50 percent owned by already-blacklisted Chinese firms. The big business nature of many Chinese state and private companies means that this will vastly increase the number of entities that US companies cannot trade with. Some analysts have even cited the recent Dutch government’s seizure of Chinese chip-making subsidiary, Nexperia, as an example of how the US ban is having global consequences.

Meanwhile, China continues to leverage its domination of the world’s rare earth production. It accounts for 71 percent of the mining, 87 percent of the processing and 91 percent of the refining of rare earth elements. China also has a near-monopoly on the production of rare earth-based permanent magnets which are crucial for many cutting-edge global industries, including defence, semiconductors, automotives and green energy. It was recently announced that from 1 December 2025, companies worldwide will need to seek a licence from the Chinese government to trade products that contain China-sourced rare earth materials.

What’s in it for China?

Last week’s trade deal could appear to be rather one-sided, given that US’s tariffs on China are only marginally lower, while China is temporarily suspending its rare earth export controls. But amid the lack of details, it is worth asking: what concessions have China managed to extract that have yet to surface?

It is notable that China has become more forceful in its demands and may have several aces that it is yet to play. By controlling the availability of rare earths, China in effect has the ability to severely disrupt many US tech-based industries, regardless of how advanced these technologies have become. The Nexperia experience demonstrates how, by withdrawing crucial components in retaliation against the Dutch government, China has been able to impact European car manufacturers. Many now say that they are close to shutting down their production lines.

By controlling the upstream segment of the global supply chain for many pivotal industries, China is in a powerful position. As such, we think that regardless of future threats, President Trump is unlikely to implement measures that would risk strong retaliation from China. The impact of such retaliatory moves would impact the US economy at a time of already slowing growth and preparations for the November 2026 mid-term elections. We expect therefore that going forward, negative market responses to trade threats will be short lived.

And having recently concluded its Fourth Plenum, China will likely intensify its focus on self-sufficiency, especially in the area of technology. Over the next few months, China is expected to further channel its resources into tech-related research and development rather than into improving its trade relations with the US. The priority will be to increase its self-reliance and attain world-leading status in crucial industries like AI hardware and software, biotech, battery technology and green energy.