Donald Trump and Xi Jinping
Trump, the first U.S. president to visit mainland China in nearly a decade, was accompanied by a group of U.S. corporate executives, including Tesla’s Ilon Musk (with son X), Apple’s Tim Cook, Boeing’s Kelly Ortberg and Nvidia’s Jensen Huang, whose businesses depend on maintaining good relations with the People’s Republic of China. They were given a proper welcome reception in the Great Hall of the People.
But the substance of the summit (less photogenic) may matter more. If the meeting solidifies two outcomes – a longer Sino-American trade truce and a path to opening the Strait of Hormuz – it will give the global economy something it has lacked for the past year and a half: risk reduction.
On trade, the October 2025 agreement signed in Busan between the U.S. and China did suspend most of Trump’s punitive duties, with China agreeing to relax controls on rare earth metal exports.
The economic impact of a summit-level agreement to extend this truce through 2027 cannot be overstated. China processes approximately 85% of the world’s rare earth elements and over 90% of rare earth magnets – components that make up every electric car, wind turbine, F-35 fighter jet, and Nvidia’s artificial intelligence gas pedal (an advanced data processing platform). A steady supply immediately removes a limiting factor for a number of Western industries.
Everybody wins
The likely winners are easy to identify. Boeing, deprived of Chinese orders starting in 2019, may finally get the kind of high-profile aircraft purchases that Trump can brag about at home. Apple will get a more reliable supply of rare-earth magnets for everything from speakers to camera modules. Tesla will benefit from clearer rules for its gigafactory in Shanghai, which now produces more than half of its global output. And American farmers – an electorate that Trump can’t ignore – will regain access to Chinese soybean and grain import markets, which have quietly diverted their orders to Brazil and Argentina.
For China, the most immediate benefit will be greater predictability. The biggest costs incurred over the past year and a half have not been caused by any particular U.S. policy or Trump’s announcement, but by the cloud of uncertainty he has cast over the global economy. A stabilization of the situation would allow companies around the world – including Chinese exporters – to resume normal corporate planning.
The second potential benefit concerns the Strait of Hormuz. The International Energy Agency has characterized Iran’s de facto closure of the strait as the largest supply disruption in the history of the global oil market. The world oil price is now about 50% higher than it was before the U.S.-Israeli war against Iran began. About 20% of offshore oil and liquefied natural gas shipments typically pass through this strait, and in 2024, 84% of that oil was going to Asia, with nearly 70% going to China, India, Japan, and South Korea.
The damage has thus been unevenly distributed. Bangladesh faces what some analysts describe as recession-like conditions. Pakistan and Vietnam have introduced energy rationing. Asian airlines have imposed fare surcharges in response to rising fuel prices. And with more than 30% of urea typically passing through the Strait of Hormuz, fertilizer prices have raised alarms about food security from Cairo to Manila.
If the summit sets the stage for a sustained opening of the strait – with China pressing Iran as its biggest oil buyer and the US lifting its counter-blockade of Iranian ports – the world economy will recover about a fifth of its hydrocarbon supplies. The hardest-hit developing economies would immediately benefit from lower oil prices, fertilizer costs and shipping insurance premiums.
Concerns remain
Nevertheless, three caveats should be considered. First, China’s relaxation of export controls on rare earth elements will remain partial, not only to deter future tightening of tariffs and export controls by the U.S., but also actions by Europeans and others to support such U.S. measures or impose their own. To prevent other countries from accumulating large stocks, China is likely to maintain rare earth element exports at a level sufficient for current consumption but not for strategic accumulation.
Second, whatever happens to the Strait of Hormuz will depend on a truce that has proven fragile. Iran has demonstrated that it can close Hormuz at will, and that knowledge will not be forgotten.
Finally, any deal struck at the summit could be nullified when the famously volatile U.S. president returns to Washington.
In any case, the most important outcome of the summit may be what escapes the headlines. For a year and a half, corporate decisions – about where to locate factories, how much inventory to hold, in which direction to diversify suppliers, whether to hire employees – have been based on the assumption that the global trading system is gradually fragmenting.
The costs of this approach are evident everywhere, from Chinese auto giant BYD’s new plants in Thailand and Vietnam, to TSMC’s $165 billion investment in a semiconductor plant in Arizona, Apple’s shift of iPhone assembly to India, and the duplication of production capacity in many other sectors.
Stable economic relations between the U.S. and China will not undo these decisions (many geopolitical considerations will remain in place), but they will slow the next round of fragmentation. Companies that created two copies of everything will be able to find a better balance between efficiency and sustainability.
Trump’s trip to China and Xi’s planned visit to the U.S. in September won’t end the era of strategic competition. But if these summits reduce the likelihood of accidents or escalation – an extension of the U.S. embargo on chips, a sudden halt in rare earth supplies, or a shipping crisis escalating into something worse – they will do more for the global economy than most recent summits.
In a year when so many things have gone wrong, that’s an encouraging prospect.
Shang-Jin Wei
Shang-Jin Wei, former chief economist at the Asian Development Bank, is a professor of finance and economics at Columbia Business School and Columbia University’s School of International and Public Affairs.
© Project Syndicate, 2026.
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