As Donald Trump and Xi Jinping prepare for trade talks, China comes with a strong hand

The meeting with US President Donald Trump and his Chinese counterpart Xi Jinping is one of the most highly anticipated bilaterals of the year, as the two leaders seek to strike a deal while also saving face.

Trump and Xi are expected to hold talks today, on the sidelines of the APEC (Asia-Pacific Economic Cooperation) meetings in South Korea.

China has proven a formidable foe after the US president announced sweeping tariffs for his so-called Liberation Day in April.

Trump said the tariffs would be a boon for the US economy, and exporters — not consumers — would eat the extra taxes.

While many countries scurried to strike a new trade deal, China pushed back. Hard.

At first it announced its own counter-tariffs, kickstarting an escalating tit-for-tat that dragged on for more than a month.

As talk of recession loomed, cooler heads prevailed and the tariffs were paused, but not cancelled completely.

Then China stopped buying soybeans from the US and pivoted to other export markets, like Brazil.

It was a targeted strike against the farming industry and America's rural areas, and left businesses sitting on crops they could not sell. These were typically strong areas for Republican support.

And then early in October, China placed severe restrictions on rare earth exports, which were vital for high-tech manufacturing like military equipment, automobiles, wind turbines, and mobile phones.

Even small amounts of materials from China would need Beijing's approval before export, leaving the US, and many others, reeling in the wake of the announcement.

Trump's obstinacy comes from his belief that the US is the most important market, so it should call the shots.

But China has shown that it too has gravitational pull, and the time to push back is now.

China pulls from Trump playbook

Trump was furious when he first heard about China's restrictions on rare earths, declaring them a "moral disgrace" and threatening to impose 100 per cent tariffs in response.

But the US then adopted a more conciliatory approach.

Earlier this week, Treasury Secretary Scott Bessent said China and the US were looking at a framework agreement, forged on the sidelines of the ASEAN summit, that would remove the threat of 100 per cent tariffs being imposed on Chinese imports from November 1.

The US president declared afterwards that he believed "we're going to have a deal with China".

However, Beijing's top trade negotiator, Li Chenggang, only said that he believed both sides had reached a "preliminary consensus".

China right now has a strong hand.

Firstly, it controls 90 per cent of refining rare earth production, meaning the US, and indeed the world, is highly dependent on China for the essential commodities.

While America is looking for ways to circumvent China's stranglehold on the industry, including reaching a recent deal with Australia to build up an alternative rare earth industry, it remains reliant on the superpower for now.

"It's not just a tactical bargaining chip," said Professor Wu Xinbo, from the Centre for American Studies at Fudan University.

"I think for China it's a national security issue and its strategic leverage in dealing with the US."

In many ways, Beijing's rare earths restrictions are something from the Trump playbook.

During Trump's first term, the president imposed strict restrictions on the export of advanced microchips to China, which continued through Biden's presidency and into the Republican leader's second term.

US allies like Korea and Japan were expected to follow suit.

But while Professor Wu argues China's rare earth restrictions are, in part, payback for the microchip policy, he says they are also necessary to protect China's interests.

"This kind of securitisation of resources or technology is something we learned from the US since the first Trump administration," he said.

"In the past, this has never been a problem. But now we gradually realise that maybe this is a necessary leverage we should play."

Beijing not in a weak position

The other element in China's favour when it comes to negotiating with the US on trade is that, while there are signs its economy is slowing, it has shown it is a resilient exporter.

Beijing's exports to the US are down, but its exports broadly are up.

"The ratcheting up of tariffs on trade between the US and China has hit Chinese exports to the US hard, but it has not hurt Chinese export performance overall," explained Alexander Brown, a senior analyst with the Mercator Institute for China Studies.

"So far this year, up until the end of September, Chinese exports in RMB terms have grown by 7.1 per cent overall."

China's manufacturing in key sectors including biotech, semiconductors and electric vehicles, spurred on by its "Made in China 2025" policy launched in 2015, now seems to be helping exports and economic growth hold up despite trade war threats.

Beijing has also turned its industrial surplus outward to keep its economic engine running as tariffs squeezed some exports.

But other headwinds remain. And with China and the US now set to meet, it's unlikely either party will be willing to let the trade war drag on if they can find an agreement that works for both of them.

"The US and China together are about 40 per cent of world GDP, so both have the potential to inflict a lot of pain on the other," says Scott French, senior lecturer at the school of economics at the University of New South Wales.

"And so it's in both of their interests to ratchet down the tension a bit."

Will there be a deal?

Trump is often accused of having a "transactional" approach to diplomacy, chalking up short-term victories while worrying less about the broader ramifications.

That concern could play into China's hands, especially on thorny issues like Taiwan.

"There is concern that Donald Trump may deliver more to China than what many in the United States strategic community may want him to offer," said Jared Mondschein, the director of research at the University of Sydney's United States Studies Centre.

"But it's hard to imagine the US going back to US-China relations in the 2010 era and before that because the entire US system has now bought in to strategic competition with China."

He also warned any deal would likely be short-lived.

"We've seen China, particularly under Xi, promise to no longer engage in corporate espionage, to not militarise the South China Sea, to not engage in certain behaviours — [promises] that they have time and time again broken," he said.

"I don't see any agreement with China lasting very long."

Professor Wu from Fudan University agreed Trump had been less interested in the geopolitics of Taiwan than his predecessors, and this could lead to "common ground".

"So far, he has refrained from saying US will defend Taiwan if China attacks Taiwan," he said.

"Biden said it four times in office."

But, he argued, when it came to deals, Trump had proven to be unreliable.

"Trump says he wants to make a deal with China," he said.

"If he really wants a big, big deal, a beautiful deal, he has to address China's concern on the Taiwan issue.

"But on the other hand, Trump is Trump. If he says something, I think China cannot take it very seriously because he can change."