Trump’s softer China strategy puts markets on alert before Xi visit

President Donald Trump built his political career partly on confronting China over lost manufacturing jobs, trade practices and threats to the American middle class. A decade later, his public tone toward Chinese President Xi Jinping has become notably warmer, the Associated Press reported Sunday.

“He’s a great gentleman; we get along great,” Trump said this month. “We have a very good trading relationship and, you know, they’re a competitor and all of that, but we have a very good relationship with President Xi."

Trump will welcome Xi for a state dinner Thursday, following his own visit to Beijing in May. The White House has prepared a South Lawn helipad for the occasion, though Trump has expressed disappointment that its new ballroom will not be finished in time.

For investors, the visit could affect tariffs, technology restrictions and access to critical minerals. Any agreement could ease costs for manufacturers, semiconductor companies and retailers. A breakdown could renew pressure on supply chains and raise uncertainty for companies exposed to China. Markets will be watching for concrete action on trade, rare earths and artificial intelligence rather than diplomatic ceremony alone.

Less confrontational tone

Trump has recently played down several disputes involving Beijing. After reports that China supplied satellite imagery to Iran, he said, “I think he’s behaved reasonably well.”

Trump also appeared reluctant to retaliate over allegations that China accessed U.S. voter information in 2020. “I think China is maybe a little bit different today than it was then.”

The softer language comes as the two countries compete for leadership in manufacturing, artificial intelligence and electric vehicles. China’s industrial expansion also threatens manufacturers in Germany, France, Italy, Japan and South Korea.

Tariffs ran into China’s leverage

Trump imposed escalating tariffs last year in an effort to change Beijing’s behavior. China responded by using its commanding position in rare-earth materials, which are essential for electronics, vehicles and defense systems.

That leverage helped push the two countries toward a trade truce. Michael Kovrig of the International Crisis Group said China emerged with the stronger hand after Washington’s tariff and export-control campaign failed to produce the desired concessions.

The dispute also unfolded while Trump was clashing with several traditional U.S. allies over defense, Iran and trade. Kovrig argued that those tensions have made it harder for Washington to organize a coordinated response to China’s growing economic power.

Trade numbers offer mixed picture

The U.S. goods deficit with China has declined from the same period in 2025, according to Census Bureau data. Administration officials have cautioned that some Chinese products may be traveling through countries such as Vietnam before reaching the United States.

Tariffs have not stopped China’s manufacturing expansion. Chinese companies have found other export markets, contributing to a global trade surplus of about $1.2 trillion last year. Low-priced Chinese electric vehicles have placed additional pressure on established automakers in Europe and Asia.

Trump can still claim a diplomatic achievement. He and Xi are on track to exchange state visits, while former President Joe Biden met Xi three times only on the sidelines of international gatherings.

AI and critical minerals remain central

Both governments are using the current pause to strengthen their positions. China continues investing in military and AI capabilities despite restrictions on advanced chips. Washington, meanwhile, is pursuing partnerships intended to reduce its dependence on Chinese rare earths.

Trump has cast rapid AI development as an economic and national-security necessity. He recently called the technology “the Greatest Economic Development Engine in History ­­ Bigger than Oil, Gold, Diamonds, or even the Internet.”

However, U.S. officials remain concerned that Chinese AI companies may be training their systems using American models. That adds another source of tension to a relationship already shaped by trade controls, technology competition and national security.

Search for a deliverable

State visits typically produce a policy agreement or commercial announcement, but it remains unclear whether Thursday’s meeting will deliver either.

Evan Medeiros, a Georgetown University professor and former National Security Council official, said the relationship itself may be presented as the main achievement. That could reduce immediate tensions, but investors will be looking for something measurable.

The most consequential signals would involve tariffs, technology exports, rare-earth supplies or rules governing AI competition. Without progress in those areas, the red carpet may offer reassuring images while leaving the largest economic disputes unresolved.