Trump Acknowledged The Trade War With China. Here’s What’s Next

The war of words between U.S. and Chinese leaders heated up ahead of an expected meeting, even as both sides left room for compromise.

Speaking to reporters in the Oval Office Thursday, President Donald Trump acknowledged that back-and-forth trade restrictions the two countries have imposed on one another amounted to a “trade war.”

For its part, a Chinese official accused the U.S. of stoking “unnecessary misunderstanding and panic” about China’s threat to impose export controls on rare earth minerals crucial to industries in the U.S. and elsewhere, according to the Global Times, a Chinese state newspaper.

The rhetoric has kept tensions high ahead of a trade summit in South Korea on Oct. 31, when Trump and Chinese president Xi Jinping are expected to meet. Another important deadline comes on Nov. 10, when the latest in a series of 90-day tariff truces with China expires, and would send the U.S. tariff rate on Chinese products to triple digits.

Trump did indicate he still wants to make a deal with China, leaving open the possibility of the dispute being defused. In a Fox Business interview Friday, he said the triple-digit tariffs he threatened to impose on China were probably “not sustainable,” but said they may be put in place anyway. 

The meeting could be a turning point in an on-and-off trade dispute between the world’s two largest economies that heated up after Trump took office for a second time in January. The U.S. has threatened to impose tariffs as high as 157% on Chinese products, a virtual embargo, while China has threatened to restrict supplies of rare earths that are critical to things like electric cars and computer chips. Should either side follow through on those threats, both economies could suffer heavily. Stocks fell at the end of last week as the trade war heated up, and the S&P 500 had yet to regain its losses Friday.

“Relations between the two largest economies remains tense as both sides have continued to exchange jabs at one another over China’s rare earth controls and U.S. threats to drastically ramp up tariff rates,” Jim Reid, head of macro and thematic research at Deutsche Bank wrote in a commentary. “While the proposed meeting between Presidents Trump and Xi at the APEC Summit in South Korea at the end of the month appears to still be on track, it seems to be giving global equity markets an extra shot of caution on Friday.”