Trump-Xi Talks Put Trade and Tech in Focus

Ariana Salvatore (0:00)

Welcome to Thoughts on the Market. I'm Ariana Salvatore, head of US. Public Policy Research at Morgan Stanley. Today, I'll be talking about next week's U.S.-China Summit. Specifically, the bilateral trade relationship, what we can expect on critical minerals and rare earths, AI dialogues, and what it all means for markets. It's Friday, September 18th, at 10 a.m. in New York.

President Xi is scheduled to visit the White House on September 24th for his second meeting with President Trump this year and his first White House visit in roughly a decade. The meeting follows President Trump's visit to Beijing in May, where the two sides established a framework for what they call a more constructive relationship of strategic stability. That meeting also produced new trade and investment dialogues, commitments around agricultural purchases and aircraft, and an agreement to begin a dialogue on artificial intelligence. But next week's summit comes at an important moment, because several of the temporary arrangements that helped stabilize the economic relationship are due to expire later this fall. We think there are three areas to focus on. The first is trade. The current U.S.-China tariff truce is scheduled to expire in November. Now public reporting suggests that the two governments are discussing an extension, alongside potential announcements on agriculture, non-tariff barriers, and a relatively narrow set of goods that could see lower tariffs. The question for markets, therefore, is less whether next week produces a comprehensive new trade agreement, and more so on whether the two sides can extend the current period of stability and prevent another significant increase in tariffs.

The second area is critical minerals. This is probably one of the clearest examples of the leverage that each side has over the other. Washington, we think, wants more predictable Chinese exports of rare earths and other critical materials used across semiconductors, autos, aerospace, and defense.

Beijing, meanwhile, has been pushing back against US restrictions on Chinese companies' access to advanced technology.

Public reporting suggests that both of these issues are part of the negotiations heading into the summit. And the timing here is really important. November 10th is an upcoming cliff affecting China's rare earth restrictions and US technology controls, followed later that month by another deadline covering certain minerals. So what happens next week could determine whether those restrictions remain suspended or begin to snap back. The third area is technology and, increasingly, artificial intelligence.

The two leaders agreed in May to establish an AI dialogue, and President Trump has specifically said AI will be discussed next week. Reporting also shows that shared AI risks could be one area for discussion, although the broader competitive relationship makes a comprehensive agreement difficult, we think.

From a policy perspective, the most important point is that technology restrictions are moving beyond advanced chips. The debate includes cloud and compute access, model distribution, procurement, and potentially the use of certain foreign AI models themselves. In other words, we think that while the summit could produce something like an agreement to keep talking on AI, the underlying shift matters more. AI sovereignty pushes both the US and China toward more restrictions or heavier government involvement even over a longer period of time. We expect that a middle path is the more plausible US approach. So think targeted restrictions on specific Chinese developers rather than a blanket prohibition on Chinese open weight models. But even that would reinforce what we've called the Two Worlds Thesis, increasingly distinct US and Chinese tech ecosystems with separate infrastructure, supply chains, standards, and distribution channels. There could also be a host of other issues on the agenda, specifically the US. Iran conflict, which we see as a tail risk into the talks. So what does all this mean for investors? Even a constructive summit is unlikely to reverse the structural push toward technology and supply chain diversification. In fact, we argue that greater U.S.-China bifurcation will actually reinforce investment in parallel ecosystems, semiconductor capacity, data centers, cloud infrastructure, power, and critical mineral supply chains. In that sense, actually less geopolitical friction next week could reduce near-term market volatility, but without necessarily changing the underlying investment cycle. So the key question coming out of the summit is not simply whether the relations are improving or deteriorating. It's whether the two sides can preserve enough stability to manage their competition while the longer-term process of de-risking continues underneath.

Thanks for listening. If you enjoy the show, please leave us a review wherever you listen and share Thoughts on the Market with a friend or colleague today.

SPEAKER_2 (4:36)

The preceding content is informational only and based on information available when created. It is not an offer or solicitation, nor is it tax or legal advice. It does not consider financial circumstances and objectives and may not be suitable for you.