A fragile truce as tempers flare

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A fragile truce as tempers flare

Containers pile up at Taicang Port Container Terminal in Suzhou City, Jiangsu Province, China, on May 18, 2025.

Nurphoto | Nurphoto | Getty Images

This report is from this week’s CNBC’s The China Connection newsletter, which brings you insights and analysis on what’s driving the world’s second-largest economy. Each week, we’ll explore the biggest business stories in China, give a lowdown on market moves and help you set up for the week ahead. Like what you see? You can subscribe here.

The big story

Just a week after a breakthrough in U.S.-China trade tensions, neither side can yet be confident that the other is holding up their end of the bargain.

“These 90 days won’t be smooth,” Liu Weidong, research fellow at a state-affiliated think tank, the ******** Academy of Social Sciences’ Institute of American Studies, told me this week. That’s according to a CNBC translation of his Mandarin-language remarks.

He predicts elevated uncertainty and smaller steps next, given the already-large breakthrough, as the U.S. and China each try to feel the other out towards a middle ground.

The posturing has already begun.

China’s Ministry of Commerce on Wednesday warned that it would take legal action against those involved in assisting or implementing measures to curb the usage of advanced semiconductors from China.

It follows an earlier accusation by the same ministry on Monday that blamed the U.S. for undermining trade talks with a Huawei chip warning last week — although the U.S. Bureau of Industry and Security had actually

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and dismissed a more restrictive Biden-era plan on chips.

Many in the U.S. are also concerned that China isn’t relaxing rare earth export controls, another area in which China dominates the supply chain. That’s despite the joint statement’s vague description of how China would “

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taken against the United States since April 2, 2025.”

“I do think Washington was expecting the export controls on that group of rare earths to be lowered, permitting exports in a relatively unrestricted way,” said Scott Kennedy, senior adviser and trustee chair in ******** Business and Economics at the Center for Strategic and International Studies in Washington, D.C.

“If it turns out that, in fact, that is not the result, the U.S. will probably conclude that China is in violation of the agreement,” he said. “We could see a re-escalation sooner rather than later.”

While the White House has yet to respond to a CNBC request for comment, a step back reveals ambiguity on China’s side.

But are the rare earth export controls part of China’s countermeasures to U.S. tariffs? That’s up for debate. An April 4 document from China’s commerce ministry and customs agency announcing the

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did not explicitly label them as such.

While China did pause restrictions on 28 U.S. entities that were slapped with

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, the ministry has made several public statements about 

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 on critical minerals.

“Given the comprehensive and competitive nature of bilateral relations, the current truce — while focused on trade—can easily be undermined by export controls,” said Yue Su principal economist, China, at The Economist Intelligence Unit.

“While rhetorical posturing is unlikely to undermine the 90-day truce, China may well recalibrate its export control regime in a measured response to U.S. actions,” she said.

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on Sunday also announced duties of up to 74.9% on imports of an engineering plastic from the U.S., Europe, Japan and Taiwan.

Trump-Xi talk?

U.S. President Donald Trump last week told Fox News he is

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with ******** President Xi Jinping, or

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to China. But Beijing

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.

“I’d be surprised if the two step into the middle of these issues right now with so much unclear,” Kennedy said.

The new U.S. Ambassador to China, David

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on Thursday, slightly more than two weeks after being

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. He was previously the head of Asia for U.S. packaged consumer goods company Sara Lee.

One of Perdue’s first social media posts called for “strong actions” on fentanyl. He said on X that, together with U.S. Trade Representative Jamieson Greer, they were “

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on next steps to stop this dangerous situation.”

The U.S. has left in place 20% in tariffs imposed earlier this year over China’s alleged role in the fentanyl crisis.

The joint statement last week said the U.S. and China would establish a mechanism for talks about economic and trade relations, but neither side has specified when the next one would occur.

Liu, who helped author a report in February with

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, emphasized the overall focus of the current talks is trade rather than tech. He expects that China could eventually agree to buy more U.S. agriculture and energy products — given the perception that pressuring farmers can influence Trump.

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Need to knowIn the marketsStock Chart IconStock chart icon

The performance of the Shanghai Composite over the past year.

******** and Hong Kong stocks climbed Wednesday.

Mainland China’s CSI 300 was up 0.68% while Hong Kong’s Hang Seng Index — which includes major ******** companies — rose 0.53% as of 12 p.m. local time.

The benchmark 10-year ******** government bond yield is at 1.669%.

Coming up

May 22: Xiaomi to release mobile phone chip, its first SUV and other products

May 27: China to report industrial profits for April

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