For the first time in six years, Mr Xi and Mr Trump met up and Trump declared the score was 12 out of 10. The markets to some extent disagreed—Wall Street fell, although not solely on news of the meeting. So what really happened? In larger terms, not much. The fundamental positions, strengths and weaknesses of the two sides, remain as is, and both sides really only agreed to step back for a while and pretend to be sort of friends. There were concessions on rare earths and tariffs, both of which can conceivably be changed again any time. The Chinese side agreed to delay controls on rare earths exports for a year, which takes the pressure off the US and the West, and one assessment we saw is that with the reduction in various tariff percentages, the average tariff rate of Chinese goods entering America will now be 47% which is considered to be manageable.
Two strange elements in the talks—Trump said that the topic of Taiwan never came up, which seems bizarre. It’s always going to be the first pro forma item on the Beijing talking point list. And Nvidia’s role was unclear. China needs Nvidia chips to fuel its AI revolution, and the indications are that Nvidia’s boss Jensen is happy to sell. He says basically that they are only a heartbeat behind the US anyway, so what’s the difference. Which is a position in terms of Nvidia’s valuation that makes a lot of sense, but maybe not so much in terms of the great geopolitical game being played. After the meeting Mr Xi said China and Nvidia would continue discussions, which suggests backdooring the US government. What extraordinary times we are in.
Possibly the key element in the meeting’s conclusion is the Chinese concession on rare earths. The US and other Western players are ramping up efforts to reduce the reliance on China’s rare earths and a year’s respite would be useful in terms of getting mining and refining up to speed, at least to some extent.
But we are dealing here ultimately with a serious game between two strong players, neither of whom wishes to relent. Those strengths and weaknesses that both sides have are worth considering in depth. The US has a diverse and rules-based system, a huge economy with great depth and a web of real power and influence around the world, but the problem is that under Trump these advantages are crumbling. China meanwhile has the strength of a highly centralized and focused system, but is struggling from the fact that it lacks the deep advantages that come from diversity and a rule-based system.
The takeaway? The world is not in great shape. Have a great weekend.