ISPI - 4 Jul 2025 - US-China Deal: Signed, But on What Terms? - Filippo Fasulo Co-Head, Geoeconomics Centre, ISPI Paola Morselli Junior Research Fellow Guido Alberto Casanova ISPI Junior Research Fellow Michele Danesi ISPI Research Trainee

 4 Jul 2025

US-China Deal: Signed, But on What Terms? 

Filippo Fasulo

Co-Head, Geoeconomics Centre, ISPI

Paola Morselli

Junior Research Fellow

Guido Alberto Casanova

ISPI Junior Research Fellow

Michele Danesi

ISPI Research Trainee

Pivot To Asia

Pivot to Asia Asia

On June 26th Trump announced that a deal with China had been signed. It was the third announcement in just a few weeks. However, the details of the agreement remain unclear, while the US-China competition seems poised to persist. In fact, efforts to stabilize trade relations are unfolding against the backdrop of mounting geopolitical instability. With Washington’s direct involvement in the Israel-Iran conflict and the war in Ukraine still unresolved, the White House faces mounting pressure to refocus diplomatic and strategic attention elsewhere. Advancing trade negotiations with China may prove difficult in this context, despite their central importance to US economic interests and political priorities. At the same time, the US has reached a preliminary trade agreement with Vietnam, underscoring Washington’s strategy of strengthening ties with alternative partners in the Indo-Pacific region, as a counterbalance to ongoing tensions with Beijing. And yet, a trade agreement remains elusive for key allies like Japan or South Korea, which are the cornerstones of the US Indo-Pacific projection.  

Why it matters 

“The deal is done”. Despite the lack of published details, both sides have reportedly agreed on concrete initial steps to implement the framework initially established during earlier talks in Geneva – an effort aimed at defusing bilateral tensions and easing export restrictions. The Geneva meeting laid out a mutual commitment to reduce trade controls, with a 90-day window to negotiate a broader settlement. The United States accused Beijing of failing to honor its commitments, and Chinese exports to the US reportedly dropped by 35%, raising doubts about the feasibility of a lasting détente. The new agreement – not yet made public – outlined a roadmap to easing trade tensions.  

Fentanyl, rare earths e semiconductors. Fentanyl trafficking remains one of the most politically sensitive issues in US-China relations: Washington has repeatedly accused Beijing of failing to regulate the export of precursor chemicals used to manufacture fentanyl- an opioid that has driven a health crisis in the United States. The Biden and now Trump administrations have both pushed for stronger enforcement measures from China. On the trade front, according to US Treasury Secretary Scott Bessent, China has agreed to simplify access for American companies to acquire rare earth minerals and industrial magnets – materials critical for microchip production and advanced manufacturing. In exchange, the United States is expected to relax some export controls, particularly on semiconductor manufacturing equipment and aerospace components. Nonetheless, it will maintain an overall tariff rate of 55% on Chinese goods, while China, for its part, will continue to apply a 10% tariff on US imports.  

Strengthening partnerships. As tensions with the United States persist, China is accelerating its outreach across multiple regions to diversify strategic partnerships. In recent weeks, Beijing has deepened engagement with ASEAN and the Gulf states, seeking closer economic and security cooperation. In Central Asia, Xi Jinping reaffirmed China’s growing influence through new infrastructure and energy deals at the recent China–Central Asia Summit. Meanwhile, Beijing remains Africa’s top bilateral creditor and key development partner: during the June 2025 China-Africa Forum, Beijing announced its readiness to drop the tariffs on imports from all 53 African countries with which it has diplomatic relations.  

Work in progress. Still, despite China’s activism, internal frictions persist within the BRICS group, and Beijing’s efforts to present a cohesive alternative to the West face considerable challenges. Cina’s global leadership ambitions remain a work in progress. The US, for its part, is trying to mend ties and reassert its presence in Asia – Marco Rubio had swiftly planned a visit to Japan, South Korea and Malaysia for next week, then delayed to prioritize Middle East security – to charm back the Indo-Pacific partners. An effort in this direction has been marked by the preliminary trade deal with Vietnam, under which imports coming to the US from the Southeast Asian country will be subjected to a 20% tariff, while a 40% tariff will be imposed on goods transshipped through Vietnam from other countries. This final clause is widely seen as a direct move against China, which has long been accused of circumventing US tariffs by routing exports through Southeast Asian partners like Vietnam. 

Another EU tour for Wang. Chinese Foreign Minister Wang Yi has embarked on a tour of Europe – visiting Brussels, Berlin and Paris – promoting closer cooperation between China and the European Union in an increasingly volatile world, and ahead of the EU-China summit at the end of July. Beijing has recognized that the EU – though eager to maintain ties with the White House, especially under a Trump administration marked by protectionist policies – will likely remain deeply interconnected with the Chinese economy. Therefore, Beijing is aiming to leverage this bond to turn Europe into an international partner, recalibrating its geopolitical strategy to counterbalance US influence globally. However, tensions on a number of issues remain high, as the imposition of export control measures by Beijing has dealt a heavy blow on Europe’s industry. In addition to that, disagreement over China’s industrial policies and support to the war in Ukraine have contributed to strain institutional relations and led Beijing to call off the second day of EU-China Summit, scheduled for July 25, which was supposed to be the “business day” of bilateral talks. Furthermore, China concluded the anti-dumping investigation on brandy imported from the EU ruling for an application of duties up to 34.9% on the product’s industrial policies and support to the war in Ukraine have contributed to strain institutional relations and led Beijing to call off the second day of EU-China Summit, scheduled for July 25, which was supposed to be the “business day” of bilateral talks. Furthermore, China concluded the anti-dumping investigation on brandy imported from the EU ruling, for an application of duties up to 34.9% on the product. 

OUR TAKE  

Although former President Trump sought to present this potential agreement with China as a triumph for his administration, framing it truly as a U.S. victory would be an overstatement. According to Chinese sources, in fact, it was the United States that first sought to ease tensions and reinitiate dialogue in response to the damaging effects of the tariff escalation it had initiated. Moreover, the agreement reportedly reached in London falls far short of the ambitious goals Trump had proclaimed at the outset of his presidency, and the new deal is just an announcement with no text released to the public. Far from emerging weakened, China appears to have come out of this economic confrontation with a clearer understanding of the strategic tools at its disposal – particularly its leverage over the United States through the supply of rare earth elements and critical intermediate goods essential to key American industries. The structural issues between Us and China are not solved yet and many more agreements are expected in the coming months. 

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EXPERTS’ VIEWS 

What does China expect from the United States in this context and how is it preparing to navigate the current and future challenges in the bilateral relationship? 

China-U.S. relations have always experienced fluctuations, but they are currently at an unprecedented low. The trade war, restrictions on technology transfer, and tightened visa policies have all hindered the development of a healthy bilateral relationship. From the U.S. perspective, China is a rising power that challenges its global dominance. Conversely, China views the U.S. as a hegemon that exerts significant control over the international order. However, as Graham Allison has noted, the ‘Thucydides Trap’ is not inevitable — conflict can be avoided if both sides make a concerted effort. Recent interactions offer a glimmer of hope, including the China-U.S. Economic and Trade Dialogue in Geneva, a phone call between the two national leaders, and the inaugural China-U.S. Economic and Trade Negotiation in London. With continued cooperation and goodwill, we firmly believe that China-U.S. relations can return to a constructive path—benefiting both nations and the world at large. 

Miao Lu, Center for China and Globalization 

How will the new South Korean presidency deal with the competitive relationship between the US and China? 

President Lee Jae-myung, elected amid domestic upheaval, has quickly engaged the international stage, attending the G7 summit. Though known as a competent administrator, his diplomatic abilities are still being tested. His foreign policy is anchored in a “national interest–centered pragmatic diplomacy,” reaffirming strong Korea-U.S. ties while also advocating constructive engagement with China. Lee aims to revive Korea-China relations, which deteriorated under the Yoon administration, and supports institutionalized trilateral cooperation with China and Japan. His phone call with Xi Jinping emphasized mutual trust, multilateralism, and the resumption of cultural exchanges, with signs that China’s “Hallyu Ban” may be ending. However, challenges remain. The U.S. is urging South Korea to increase defense spending to 5% of GDP, while raising the possibility of reducing U.S. troop levels and deploying them in a Taiwan contingency. These U.S. moves could intensify domestic polarization and complicate Lee’s foreign policy decisions. 

Lee Sangsin, Korea Institute for National Unification 

SPOTLIGHT: Lee Jae-myung dragging South Korea out of the quagmire 

As highly anticipated by the opinion polls, the democratic candidate Lee Jae-myung was elected as South Korea’s new President on the 3rd June with 49.42% of the popular vote over the conservative candidate’s surprisingly good result of 41.15%. This means that, despite Yoon Suk-yeol’s impeachment for his martial law attempt, conservatives maintain a strong hold over the public amid the deep polarization exacerbated by the political crisis of the last months. Lee will have the opportunity to steer the government’s policymaking while also having the majority in the Parliament: this political alignment could help him normalize the political process (severely strained under previous administration) as well as allow him to carry out extremely needed economic reforms. Among the main announcements he made is an economic package that would contribute to the economic recovery of the country, with increased public expenses, support for families and low-income households, boost consumption and local economies, continue supporting key industries as high-tech, military equipment and entertainment. As far as foreign policy in concerned, Lee stated he wants to strengthen the partnership with the US, fundamental for South Korea’s national economy as well as regional security. In order to do so, it will be necessary to strike a deal to mitigate the potential effect of Trump’s tariffs in case they are confirmed in early July, but the democrats’ traditional China-friendly stance risks reducing chances to achieve an agreement with Washington. 

WHAT AND WHERE 

War in the Middle East: China’s engagement with Israel and Iran 

Israel’s missile strike against Iran on June 13 and the subsequent escalation is of great concern for the Asian superpower. As per its diplomatic tradition, Beijing  seeks to promote dialogue and despises conflicts in areas, like Iran and the Middle East, where it has economic interests, particularly related to energy security. Beijing soon condemned Israel’s attack accused US President Donald Trump to “pour oil” on the conflict, as Washington has joined  the conflict instead of promoting de-escalation. Behind China’s backing of Teheran are strong economic and security concerns: not only have the two regularly cooperated on military exercises and signed security agreements, China also absorbs about 90% of Iran’s oil exports, thus making Teheran the 6th source of oil for Beijing. Moreover, further escalation brings along the  risk of Iran closing the Strait of Hormuz – as it has threatened – would be a major problem for Chinese energy supplies, as more than a third of the crude oil passing through Hormuz is headed to China. Despite Chinese interests in the region, Beijing does not seem inclined to play an active role in the mediation of the conflict. And even if it did have such a will, it would be a difficult endeavour: while China brokered an Iran-Saudi agreement in 2023, its statements in support of Palestine and opposition toward the US policy in the area make the PRC an actor that Israel is unlikely to see as impartial. 

The aftermath of border confrontation: India-Pakistan tensions and the role of China 

The Pakistani terrorist attack in Kashmir and the subsequent border conflict with India between April and May prompted many analysts to evaluate the prospects for regional order and the display of military equipment and international support, focusing particularly on the role of China. With the Indian air force traditionally relying on equipment imported from Russia – followed by France, Israel and the USA –, Pakistan’s purchased more and more products from China (82% of its military hardware import), particularly the fifth-generation J-20 aircrafts, and allegedly obtained satellite support. The difference in armaments’ compositions also highlights how the skirmish represented a test on military technology, with India taking down many Pakistani systems and aircrafts and Islamabad claiming to have shot down an Indian jet. Chinese support to Islamabad is based on extensive economic and security cooperation, both of which the two countries have pledged to  enhance after the border conflict of last month: the Foreign Ministers of the two countries met on May 20 in Beijing, reiterating their intention to deepen the “all-weather strategic cooperative partnership” and the future developments with the China-Pakistan Economic Corridor (CPEC). In support of Pakistan following India’s retirement from the Indus Waters Treaty, the PRC has also pledged to speed up the work on the Mohmand Hydropower Project in North-western Pakistan, a dam project on which China Energy Engineering Corporation has been working since 2019 under the umbrella of CPEC. 

ASEAN Ministerial Summit: Southeast Asia meets Beijing and the Gulf in Malaysia 

On May 26-27, the 46th ASEAN Summit took place in Kuala Lumpur, followed by the second ASEAN-Gulf Cooperation Council (GCC) Summit and ASEAN-GCC-China Summit. Wang Yi’s presence at the latter Summit – the very first among the three – underlined the PRC’s effort to establish itself as a strong and reliable economic partner at a time changing international order and general unrest in the international trade environment. In the Joint Statement that China, ASEAN and the GCC signed, the three: condemned “the unlawful presence of the State of Israel in the Occupied Palestinian Territory” and re-stated their support for the two-state solution; committed to enhancing economic cooperation by exploring new opportunities for trade and investment and keeping an eye on sustainability; agreed to further explore possibilities for investment in connectivity development; agreed to explore new paths for energy security, sustainability and digital transition. ASEAN in particular has a difficult challenge ahead: with an economy mainly export-oriented and a huge dependence on the US market (as well as the Chinese one), countries of the group are feeling the uncertainty of global economy and, now more than ever, need to find a balance between regional alignment and economic cooperation from Washington, despite Chinese pressure on them to tilt primarily towards Beijing. 

Spy stories are getting all too real in Taiwan  

Several high-profile espionage cases uncovered in Taiwan over the last few months have been raising concerns regarding Chinese infiltration in the island. Such activities across the strait have been ongoing for decades, but the recent discovery of a spy ring reaching into the highest echelons of the Taiwanese political leadership has shed more light on the pressure campaign that Beijing has carried out against the island with increased intensity over the last few years. This month, four members of the ruling Democratic Progressive Party (DPP) have been charged by prosecutors with the accusation of sharing state and diplomatic secrets with Chinese intelligence consistently over time. The four occupied prominent positions in the current establishment: one was a personal assistant to then-VP Lai Ching-te – who was elected President last year –, while another was a long-time collaborator of then-foreign minister Joseph Wu. As such, the access to the highest foreign policy-making circles in Taiwan may have enabled the Chinese intelligence to seize sensitive intelligence for a long period of time: two of the defendants pleaded guilty but the other two rejected the allegations. However, this is not an isolated case. Earlier this year the former parliamentary speaker of the DPP was also involved in a similar scandal, whereby his assistant was accused of espionage for China. 

TREND: What Future for EVs in Asia? 

The line graph shows changes in revenues in the EV sector in China and South Korea compared to the EU market and the USA with projections extending to 2029, based on current data available. Two elements are of key interest: firstly, China has established itself as the undisputed global leader between 2020 and 2023, creating a gap that will be hard to fill. Second, while the EU and US follow similar but less accentuated tendencies, South Korea looks bound to remain far from being competitive market in the next few years.  

China’s dominant position on the global scale is clear: after the staggering +516% in revenues between 2020 and 2023, the market will still rise driven by huge production of electric batteries and growing EV sales, which are in line with the country’s effort to reduce carbon emissions and oil imports. Furthermore, to foster the growth of battery electric vehicles (BEVs) vis-à-vis plug-in hybrid electric vehicles (PHEV) vehicles, manufacturers are aiming at reducing costs and increasing the range of vehicles to make them more appealing, which are two of the main restraining factors in China’s domestic market.