Trump acknowledges the trade war with China. Here’s what’s next

The war of words raged between the American and Chinese leaders before the expected meeting, even as both sides left room to reach a settlement.

Speaking to reporters in the Oval Office on Thursday, US President Donald Trump acknowledged that the tit-for-tat trade restrictions the two countries have imposed on each other amount to a “trade war.”

For its part, a Chinese official accused the United States of stoking “unnecessary misunderstanding and panic” over China’s threat to impose export controls on rare earth minerals vital to industries in the United States and elsewhere, according to the Global Times, a Chinese state newspaper.

The rhetoric has kept tensions high ahead of a trade summit in South Korea on October 31, where Trump and Chinese President Xi Jinping are expected to meet. Another important deadline comes on November 10, when the latest in a series of 90-day tariff truces with China expires, which would raise the US tariff rate on Chinese products to triple digits.

Trump has indicated that he still wants to make a deal with China, leaving open the possibility of defusing the conflict. In an interview with Fox Business on Friday, he said the triple-digit tariffs he threatened to impose on China might be “unsustainable,” but said they might be implemented anyway.

The meeting could be a turning point in the on-and-off trade dispute between the world’s two largest economies that has intensified after Trump took office for a second time in January. The United States has threatened to impose tariffs of up to 157% on Chinese products, a virtual ban, while China has threatened to restrict its supplies of Chinese goods. Rare earths are essential for things like electric cars and computer chips. If either side continues to implement these threats, both economies could suffer severely. Stocks fell last weekend as the trade war intensified, and the S&P 500 has yet to recover its losses on Friday.

“Relations between the two largest economies remain tense as the two sides continue to trade blows over China’s controls on rare earths and US threats to significantly increase tariff rates,” Jim Reed, head of macro and thematic research at Deutsche Bank, wrote in a commentary. “While the proposed meeting between Presidents Trump and Xi at the APEC summit in South Korea at the end of the month appears to remain on track, it appears to give global stock markets an extra dose of caution on Friday.”