'Hostile, but hooked': What's behind the US-China trade truce extension?

The Stage Is Set for Diplomacy

When Chinese President Xi Jinping arrived in Washington, DC for his state visit on Wednesday, the atmosphere was one of formal diplomacy and high-level engagement. The ceremonial welcome, complete with the red carpet and official greetings, signaled a momentary thaw in a relationship that has been increasingly strained by trade disputes, technological competition, and geopolitical rivalries.

Yet beneath this veneer of cooperation lay an enduring contest between two global powers—one that remains defined by mutual suspicion and competing interests. As the two leaders met for talks, the extension of their recent trade truce became a symbol of their cautious approach to managing conflict, even as they continue to clash over fundamental issues like AI dominance, rare-earth metals, and the future of Taiwan.

Why the Truce Matters

The October 2025 truce was designed to provide some breathing room after years of escalating tariffs and retaliatory measures. It had already laid out key provisions: a temporary pause on additional tariffs, an agreement for China to purchase more soybeans from the US, and a delay in the implementation of restrictions on rare-earth exports.

As of this week, that truce has been extended by two months—another short-term solution that analysts view with skepticism. While it allows both sides some time to negotiate, it also reveals how far apart they still stand. In fact, the very act of extending the truce indicates a lack of progress on core issues, suggesting that deeper disagreements remain unresolved.

"The two-month extension isn't a bridge to a grand bargain – it's a temporary sandbag holding back a structural flood," said Einar Tangen, a senior fellow at the Center for International Governance Innovation.

Transaction Theatre or Strategic Pause?

Some experts argue that this latest extension is less about achieving lasting peace and more about political necessity. With midterm elections looming, President Trump is under pressure to show tangible results on international relations, particularly in light of his unpopular war with Iran.

The truce may be a strategic move to keep the conflict from escalating further, but it also underscores how fragile the current situation remains. "Success in January won't be measured by what is solved, but by whether the knot is left tight enough to hold, but not kill," Tangen noted.

Phillippe Le Corre, professor of international relations at ESSEC Business School, echoed this sentiment. He warned that the current state of affairs reflects a failure to find common ground on critical issues and that the extension signals a worsening situation rather than improvement.

"The extensions are getting shorter and shorter, which means they haven't found a common ground on many issues," he explained.

A Game of Economic Chicken

The stakes in this ongoing trade war are enormous. Any further escalation would have serious implications for both economies. According to the Congressional Research Service, tariffs still remain high—36.5 percent on Chinese goods imported into the US and 31 percent on US goods entering China.

These rates could significantly increase import and manufacturing costs, squeezing margins and pushing consumer prices higher. For a country already grappling with a national debt of $40 trillion, these financial pressures are particularly concerning.

Moreover, the AI race between the two nations adds another layer of complexity. US policymakers are actively trying to reduce dependence on Chinese tech, but any collapse in AI sector valuations could trigger a financial crisis that rivals the 2008 meltdown.

"Washington is playing a high-stakes game of economic chicken with a $40 trillion debt load, an inflationary sword of Damocles, zero fiscal cushion to absorb a truce collapse and a dependence [on] Chinese industrial and manufacturing inputs," Tangen observed.

China's Strategic Leverage

One factor that gives China considerable leverage is its control over rare-earth minerals—critical components in high-tech industries such as semiconductors, renewable energy systems, and defense equipment. China holds about 60 percent of the world's known rare-earth deposits and processes roughly 90 percent of them.

Last year, Beijing began restricting exports of several rare-earth metals to punish what it perceived as unfair treatment by the US. While these restrictions were temporarily suspended under the latest truce, they are not permanently shelved—meaning China retains the ability to use this economic weapon at any time.

"[China] understood this over the past year and they are certainly not going to give up on this," said Le Corre.

This dynamic makes the current truce a precarious arrangement—one that could unravel at any moment if either side feels pushed too far or if new tensions arise, such as those related to Taiwan or broader military actions.

What Lies Ahead

Analysts agree that a durable agreement between the US and China will be challenging to achieve. Sun Chenghao, a fellow at Tsinghua University's Center for International Security and Strategy, suggested that while the truce extension is a useful interim step, real progress depends on concrete commitments from both sides.

"From China's perspective, a sustainable agreement needs reciprocal benefits and greater policy predictability," he explained. "Additional purchases cannot indefinitely compensate for uncertainty over tariffs, technology restrictions and market access."

For such an agreement to last, it would need clear mechanisms for regular consultation, dispute resolution, and ongoing support for trade flows—elements that are still missing from the current framework.

Ultimately, the path forward remains uncertain. While both nations are motivated to avoid full-scale conflict, the structural differences in their approaches to power, governance, and economic strategy make compromise difficult. As long as the US views China as an existential threat, meaningful progress will remain elusive.

The truce may offer a momentary reprieve, but it's clear that the larger game continues to unfold with increasing intensity. Whether it can evolve into a lasting framework depends on both sides' willingness to make concessions—and the stability of global markets under pressure.