China Casts Doubt on Trump’s 'Done' Trade Deal
Asian equities have lost ground, far from the euphoric reaction you might expect if China and the U.S. have really settled their trade differences, but appear to suggest the 'TACO trade' is in play.
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There’s been a tepid reaction in Asia to claims from U.S. President Donald Trump that a U.S.-China trade deal is “done.”
A Chinese foreign ministry spokesperson, Lin Jian, was quizzed on Thursday about Trump’s claim that the United States has reached a deal with China in which China will supply rare-earth minerals.
Lin described the agreement as a “consensus in principle” on the “framework of measures” that will implement the “important consensus” reached when Trump spoke with Chinese President Xi Jinping by phone on June 5.
This framework will also “consolidate” the results of trade talks held in Geneva in mid-May. At least the Geneva conflab yielded a joint statement, essentially suspending the retaliatory tariffs that the world’s two largest economies had slapped on each other. Those import duties were so high that they amounted to an effective embargo, both sides agree.
Framework Without a Frame?
There’s been no such statement out of the two days of talks at Lancaster House in London, despite the high-level delegations sent by both nations.
“OUR TRADE DEAL WITH CHINA IS DONE,” Trump said in an all-caps social media post that said China will supply rare earths and magnets “up front,” while Chinese students will be able to attend U.S. universities, something Trump says “HAS ALWAYS BEEN GOOD WITH ME!”
Trump also insists that China will be paying 55% tariffs, while China will maintain 10% tariffs on U.S. goods.
Worried Trump Will Back Out
No such details appear in any materials from the Chinese side. It appears that any framework is at best grounds for future discussion, and at worst a framework without any actual frame.
China is also not at all confident that Trump will follow through. “Now that a consensus has been reached, both sides should abide by it,” the state-run English-language Global Times states in covering Lin’s response to questions about any deal.
“It is hoped that the U.S. will work with China to implement the important consensus reached by the two heads of state during their phone call,” Lin says, “give full play to the role of the China-US economic and trade consultation mechanism, enhance consensus, reduce misunderstandings and strengthen cooperation through communication and dialogue.”
Cried Wolf Once Too Often?
Markets no longer respond to Trump’s claims of deals. That boy has cried wolf too often.
I was expecting a rapturous reception in Asian markets if China and the United States have settled their differences on trade. But Hong Kong and Chinese stocks have moved lower instead.
The Hang Seng in Hong Kong is down 1.4% Thursday, although Zijin Mining ZIJMY (HK:2899) is among the top gainers, the gold-copper-zinc extractor up 4.9%. Chinese mining stocks have enjoyed a rare moment in the spotlight given the sudden focus on rare-earth minerals in U.S.-China talks.
China Rare Earth Minerals is a penny stock that has been bouncing around on news from the talks. It is down 14.3% Thursday, but has virtually doubled since the London talks began, up 85.7% in the last five days.
The Hang Seng Tech Index suffered more than the broader market, down 2.2% Thursday, with the Hang Seng China Enterprises down 1.5%, tracking mainland-based companies. So we can read more into the Hong Kong indexes than the mainland CSI 300 index, which closed essentially flat, on a 0.06% loss.
And the first comments made by Chinese Vice Premier He Lifeng coming out of the meetings in London stressed that the United States should “honor their words with actions.” He headed the Chinese delegation, while U.S. Treasury Secretary Scott Bessent, U.S. Commerce Secretary Howard Lutnick and U.S. Trade Representative Jamieson Greer led the U.S. trade-talks team.
Official Chinese wire service Xinhua calls the London talks merely an “important consultation” in which both nations made their key concerns clear. Like Lin at the Chinese Foreign Ministry, Xinhua does not mention a completed deal, only that the two sides “reached principled agreement” on implementing the “important consensus” reached with the Trump-Xi phone call and during the talks in Geneva.
TACO Trade in Play
The TACO trade – Trump Always Chickens Out – seems reflected in the Hang Seng’s progress this year. The index is up 22.5% so far in 2025, despite the big selloff in April when Trump introduced his Rose Garden chart. That leaves the Hong Kong benchmark only 2.8% below its March highs.
I have been startled that markets have been so sanguine faced with the economic disruption produced by the on-again-off-again tariffs. Even if they remain at a base 10%, U.S. import duties would be far higher than the 1.8% average U.S. tariffs for the past 30 years.
The Smoot-Hawley tariffs that precipitated the Great Depression raised tariffs by 47% since they came off a far higher base. This would be a 450% increase, at a time that U.S. goods imports account for 12.2% of the U.S. economy, far higher than the 4.3% share in 1929.
Trump is now threatening unilateral tariffs on any nation that doesn’t strike a “deal” before the July 9 deadline to re-impose those Rose Garden levels. That’s when the 90-day suspension expires. Markets aren’t sure which way to move in response, but to me, the risks look very much to the downside.
