Breakdown | The weekly recap

It’s been less than three weeks since the US and China announced a 90-day tariff de-escalation – and already the détente appears to be breaking down before our eyes.

At issue: Both sides are already accusing each other of not holding up their end of the bargain.

• US President Trump stated explicitly on social media on Friday that China “has totally violated its agreement with us.”
• For their part, Chinese officials said last week that the US Commerce Department’s recent guidance on Huawei Ascend chips could derail talks.
• Then this week, reports emerged that Commerce is instructing major US electronic design automation (EDA) software companies to restrict sales to Chinese buyers.
• China hasn’t responded to this move in force – at least yet – but we expect a greater rhetorical response soon, and perhaps outright retaliation.
• Finally, US Treasury Scott Bessent said in a media interview this week that ongoing talks are hitting an impasse – which may require direct intervention from Xi Jinping and Donald Trump (something the Chinese leader is unlikely to pursue).

From China’s perspective, the additional tweaks to export controls that the US has undertaken over the past three weeks cut against “the spirit” of the Geneva talks – and underscore the US’ lack of sincerity in finding a lasting truce.

On the US side, the administration reportedly thinks that China is not rolling back its own export controls on rare earth elements (REEs) quickly or fully enough to be considered in line with the Geneva agreement.

• It was apparently this perception that led to the recent EDA controls.
• In addition, the US is also now reportedly restricting the sale of jet engines to COMAC, China’s state-owned aerospace manufacturer – with reports indicating this move is also in direct response to ongoing REE export controls.
• And on Saturday, Axios reported that even Secretary of State Marco Rubio’s announcement that the US will “aggressively” revoke Chinese student visas was meant as retaliation for the controls.  

While talks have not totally broken down – and the fragile détente remains in place for now – this week’s back-and-forth highlights just how quickly things can go off the rails, and how easily re-escalation could begin.  

I discussed all of these issues in depth with my colleagues Kendra Schaefer and Ether Yin on this week’s Trivium China podcast.

• The pod is worth a listen to get more granular detail on the key dynamics here, and what we think the likely outcomes will be.

Looking forward: At this point, it seems exceptionally unlikely that China will remove the seven REEs that it recently added to its dual-use export control list.

• While China placed those REEs on the list as part of the trade tit-for-tat in April, the dual-use listing itself – which now requires export licenses for the sale of these minerals to all countries – was not trade retaliation, per se.
• The retaliatory part of the listing was, implicitly, that China would not grant licenses for sales to US buyers.
•  So from China’s perspective, if they begin granting licenses to non-defense-industry US buyers, then they are upholding their end of the Geneva bargain.
• FWIW: I discussed the specifics of the REE export control issue with my colleague Cory Combs on last week’s Trivium podcast.

The key problem: The process for granting these newly required licenses – from MofCom – is apparently chaotic and slow going. That has led to REE export disruptions to all countries, not just the US.

• In our view, it’s likely that China will indeed grant licenses for REE sales to non-defense US manufacturers as soon as it can (which may be several weeks, at best).
• However, the Trump administration is clearly not satisfied with that result, and if it continues retaliating out of frustration, China may refuse the licenses after all – as it will deem the US as having contravened the Geneva agreement.

What’s more, if the Trump administration was expecting that China would remove REEs from the export control list altogether, well that just isn’t happening.

• There’s no way China will give up what has clearly become its most effective piece of leverage in negotiations with the US.
• And ironically, the more the Trump administration hits back because of the REE export controls, the more clearly China will understand this to be its strongest trade weapon.

The upshot: The fragility of the trade détente reached in Geneva was always apparent, and this week’s developments have only made it more so.

 Andrew Polk, Co-founder, Trivium China

What you missed

Econ and finance

On Monday, Bloomberg scooped that officials are working on new measures to strengthen China’s manufacturing sector.

• Goals include maintaining manufacturing’s share of GDP in the upcoming 15th Five-Year Plan (2026-2030) and preparing an updated version of Made in China 2025 to push for global leadership in key industrial sectors.
• Meanwhile, policymakers are reportedly wary of including a target for consumption’s share of GDP in the Five-Year Plan.

On Tuesday, the Shanghai Futures Exchange (SHFE) – which primarily trades metals – released 34 proposed changes to rules on market access, trading, settlement, and risk management, with the goal of significantly expanding foreign participation.

• The biggest changes include: allowing USD-denominated collateral to be used for RMB-denominated futures and options trades; and permitting foreign brokers and other traders to trade directly on the SHFE.

Corporates

On May 22, Reuters reported that BYD’s April sales figures for battery electric vehicles (BEV) in Europe reached 7,231 units – representing a 169% y/y surge.

• The figure places BYD ahead of Tesla – which sold 7,165 units – in monthly European market share for the first time.
• BYD’s overall annual sales grew tenfold from 2020 to 2024 – the fastest growth trajectory in auto industry history.

Tech

On May 21, the Ministry of Commerce (MofCom) unveiled a new blueprint for reforming China’s National Economic and Technological Development Zones.

• These zones – descendants of Deng Xiaoping’s original Special Economic Zones – have been a mainstay of China’s opening-up strategy since the 1980s.
• Authorities are recasting policy for these zones to align with Xi Jinping’s push to develop “new quality productive forces.”
• Key priorities include strengthening R&D pipelines, supporting the modernization of legacy industries, and accelerating the integration of the digital and real economies.

The results of the 2024 National Data Survey – conducted by the National Bureau of Statistics (NBS) and published on Wednesday – show that China is producing ever-greater amounts of data.

• In 2024, China produced 41.06 zetabytes of data – or 31.31 terabytes of data per capita – a 25% increase over 2023.
• China’s national computing power also saw growth last year, with total computing power reaching 280 EFLOPS.
• 32% of that – or 90 EFLOPS – is computing power suitable for intelligent applications, like AI.

Net zero

On May 23, the State Council approved a three-year (2025-2027) action plan aimed at promoting green and low-carbon development in China’s manufacturing sector.

• The plan seeks to push traditional industries to upgrade, with cleaner technologies and more sustainable production processes; it will also accelerate green transformation in key sectors through targeted policy support and modernization initiatives.
• Promoting the use of clean energy and eco-friendly materials in emerging industries, from the outset, is also a priority.

Business environment

On Monday, the general offices of the Party Central Committee and the State Council jointly released guidelines to improve corporate governance across Chinese companies – both state-owned and private.

• The opinions mark an effort to professionalize millions of private companies, encouraging them to adopt clear ownership structures, establish formal governance bodies, and implement internal compliance mechanisms.
• The opinions also encourage deeper integration of Party cells into private enterprises.

US-China

On Wednesday, US Secretary of State Marco Rubio announced that the US would begin to “aggressively revoke visas for Chinese students, including those with connections to the Chinese Communist Party or studying in critical fields.”

• Framing the decision as a national security measure, he also said the US would “revise visa criteria to enhance scrutiny of all future visa applications from the People’s Republic of China and Hong Kong.”
• In the 2023-2024 school year, more than 270,000 Chinese students studied in the US, accounting for about a quarter of all foreign students in the country.

As always, it was a busy week in China.

• Thank goodness Trivium China is here to make sure you don’t miss any of the developments that matter.