Everyone wants to believe the trade war is cooling off. But that’s unlikely.
After 2 days of negotiation in what was supposed to be a “quick meeting” in London, US and Chinese officials announced a “preliminary framework” to calm tensions and revive the Geneva truce.
But underneath the handshake headlines, the reality doesn’t seem so positive. This is not a real reset, but a break.
And although still not officially signed, the deal could present some opportunities for investors, depending on the real outcome.
What was actually agreed?
The London talks produced a “non-binding and provisional framework”, meant to salvage the Geneva deal from collapse. But just like last month’s talks, the details remain vague.
The key outcomes were China agreeing to fast-track rare earth magnet shipments and the US agreeing to loosen some export controls.
The delegations will now present the proposal to Presidents Trump and Xi Jinping for final approval. If they sign off, it will hold off the tariff snapback set for August 10.
If not, tariffs of up to 145% on US imports from China will return. China would hit back with up to 125% on American goods.
US Commerce Secretary Howard Lutnick said the agreement “puts meat on the bones” of May’s Geneva consensus. But he also admitted it offers little clarity beyond that.
Chinese negotiator Li Chenggang echoed that sentiment. The talks were described as “in-depth and candid,” yet concrete deliverables remain sparse.
Markets barely moved. The MSCI Asia Pacific index rose by 0.57% on the news. US equity futures dipped slightly. The yuan was flat.
This reaction clearly shows that investors remain conservative. This was only a relief that things hadn’t worsened.
Why Europe Took the First Hit
The most immediate economic damage from this US–China deal is surprisingly showing up in Stuttgart and Mladá Boleslav.
In April, China placed global export controls on seven categories of rare earth minerals.
These include neodymium and dysprosium, key inputs for electric vehicle motors and military-grade equipment.
This wasn’t just aimed at Washington. Europe got caught in the crossfire.
The European auto sector, especially EV manufacturers in Germany and the Czech Republic, is now facing higher input costs and severe sourcing uncertainty.
With China holding two thirds of the global market for processed heavy rare earths, Europe’s dependence has turned into a liability.
Source: Voronoi
Although the measures were initially seen as retaliation against the US, their global scope has left EU producers exposed.
This fallout comes just weeks before the EU-China summit in Beijing, where both sides are expected to address trade tensions and access to critical minerals.
The real stakes: chips vs magnets
What’s happening isn’t just about tariffs or trade balances. It’s about leverage.
The US holds the keys to advanced chip design, AI software, and cutting-edge aviation technology.
China controls the critical materials used to build them. Around 90% of global rare earth magnet supply comes from China.
Source: Statista
These minerals aren’t just used in cars. They’re essential in everything from missiles to wind turbines to smartphones.
In response to Beijing’s rare earth curbs, Washington revoked export licenses for chip design tools and chemicals used in semiconductor manufacturing.
The aim was to halt China’s technological rise. The result has been a new kind of economic warfare where access is the main weapon.
This framework agreement, if approved, would ease the blockade on both sides. But no one is dismantling the architecture of economic containment.
US officials haven’t lifted foundational controls. And China is still insisting that any long-term deal must allow it access to key technologies and global markets.
The London agreement skirts all of that.
Is this about trade or politics?
This conflict is no longer just economic. It’s deeply political. Trump wants a deal he can sell to voters as proof he’s tough and effective.
Xi wants an agreement he can promote at home as equal and dignified. Neither wants to be seen conceding ground.
That’s why this deal avoids anything permanent. It delays decisions. It gives both leaders a way to say: we’re in control.
But the economic cost is mounting. China’s exports to the US fell 34.5% in May, the worst drop since early 2020.
Source: Bloomberg
US importers are still facing higher costs, and while the Federal Reserve isn’t sounding alarms yet, business confidence is fragile.
The World Bank just lowered its 2025 global growth forecast to 2.3%, citing trade uncertainty as a key risk.
Neither side can force the other to fold. The US has economic power, but Xi has political endurance.
Beijing is betting that Trump is facing more domestic pressure and needs a resolution more urgently than China does.
Any potential winners?
Rare earth miners outside of China, particularly in Australia, Canada, and the US, stand to gain as countries look to diversify supply.
Semiconductor firms may benefit if export controls ease, though only marginally for now.
Aerospace companies like Boeing and defense contractors reliant on rare earths might see some relief. But no one should bank on a major rally.
European automakers are clear losers. They’re paying higher costs without any policy relief.
Chinese exporters are also in trouble, especially in consumer electronics, where US demand has plunged.
And for small manufacturers caught between two national security regimes, the message is simple: you don’t matter in this fight.
What’s worse, the trust deficit is growing. Every time a deal like this falls apart, markets become more skeptical that the next one will hold.
Investors are starting to price in a world where supply chains are permanently politicized.
The London deal is a patch instead of a fix. If approved, it buys 60 more days of quiet.
But the forces driving this conflict, which are technology, pride, and politics, aren’t going away.
Ultimately the trade war isn’t ending anytime soon. It’s just evolving into something smarter, slower, and harder to reverse.
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