A Potential Thaw in U.S.-China Trade Relations

Global markets turned their attention to Asia this week as U.S. President Donald Trump confirmed he would discuss both tariff relief and AI technology exports with Chinese President Xi Jinping during their highly anticipated meeting in Gyeongju, South Korea, on Thursday. The remarks mark a potential inflection point in the strained relationship between the world’s two largest economies, whose trade and technology rivalry has shaped global markets for the past decade.

Speaking to reporters aboard Air Force One, Trump said he planned to cut the 20% fentanyl-related tariff on Chinese imports to as low as 10%, in exchange for Beijing’s cooperation in curbing the export of precursor chemicals used to make the synthetic opioid. “I expect to be lowering that because I believe they’re going to help us with the fentanyl situation,” Trump said, hinting that both sides were nearing a broader trade understanding.

The Wall Street Journal earlier reported that the tariff reduction would likely be formalized if the two leaders agree to a framework for cooperation on both trade and security.

Nvidia’s “Super Duper” Chips at the Center of Negotiations

Perhaps more consequential for markets, Trump also suggested that discussions with Xi would include Nvidia’s flagship Blackwell AI processors, calling them “super duper chips” and “ten years ahead” of global competitors. The Blackwell architecture, which powers next-generation AI and large language models, has become symbolic of the U.S. lead in advanced semiconductors — and a flashpoint in the tech rivalry between Washington and Beijing.

Nvidia shares jumped 8.5% in Asian trading, signaling expectations that even a partial export reopening could significantly alter the company’s revenue outlook. CEO Jensen Huang, who recently briefed Trump at the White House, confirmed that while Nvidia currently holds zero market share in China, the company would be ready to re-engage if export restrictions are eased.

However, the potential move has divided policymakers in Washington. National security officials warn that granting China access to even downgraded versions of the chip could undermine U.S. efforts to preserve its technological edge. Commerce Secretary Howard Lutnick reiterated earlier this year that “we don’t sell them our best stuff — not even our third best,” suggesting that any policy reversal would represent a significant shift in U.S. strategy.

Trade Deal Framework Takes Shape

Behind the scenes, U.S. and Chinese negotiators have reportedly finalized a broad framework agreement in Malaysia, setting the stage for Trump and Xi to roll back select tariffs and restore market stability. The framework would maintain existing tariffs on most goods, while reducing duties on fentanyl-linked products and delaying China’s rare earth export restrictions for at least a year.

In return, the U.S. is expected to pause new export controls on critical technologies, including AI software and chipmaking tools, while approving the sale of ByteDance’s TikTok U.S. operations to an American-led consortium. Beijing has also resumed limited purchases of U.S. soybeans — a symbolic step toward rebuilding trade flows disrupted in recent years.

“The world is watching, and I think we’ll have something that’s very exciting for everybody,” Trump said during remarks at the Asia-Pacific Economic Cooperation (APEC) summit, signaling optimism for a “great deal for both nations.”

Looking Ahead: A Test for Markets and Diplomacy

If finalized, the Trump-Xi accord could mark the most significant reset in U.S.-China relations since 2020, with implications for supply chains, global trade, and the semiconductor ecosystem. Analysts say the combination of tariff relief and selective technology cooperation could bolster short-term market sentiment but carries long-term strategic risks if China leverages renewed access to accelerate its AI development.

Investors will be closely watching the outcome of Thursday’s talks for signals on tariff timelines, AI export allowances, and possible monetary concessions tied to drug enforcement. A successful meeting could ease inflationary pressures by lowering import costs — but a breakdown would risk reigniting trade tensions just as markets have begun to stabilize.

For now, the world’s two economic superpowers appear poised for a tentative détente, one that could redefine both trade diplomacy and technological competition in the years ahead.