U.S. Seeks to Avert Trade War with China as Trump Prepares to Meet Xi in South Korea

U.S. Treasury Secretary Scott Bessent said Wednesday that Washington does not want to escalate its trade confrontation with China, describing current diplomatic efforts as a bid to preserve stability in the world’s two largest economies.

His comments came as officials on both sides raced to prepare for a planned meeting between President Donald Trump and Chinese President Xi Jinping in South Korea later this month.

Speaking at a CNBC event, Bessent said officials from both countries were in “daily contact” to arrange the leaders’ meeting, emphasizing that the Trump administration’s goal was not to sever ties with Beijing but to “find common ground” after months of rising tension.

We are not looking to decouple from the second-largest economy in the world, Bessent said.

Bessent insisted that trust between Trump and Xi had prevented a full-blown trade conflict from reigniting, despite sharp rhetoric and tit-for-tat measures that have rattled global markets in recent weeks.

The U.S. and China appeared headed for another bruising trade war late last week after Beijing announced sweeping new restrictions on rare earths exports — a move widely seen as a direct challenge to Washington’s escalating tariffs and shipping fees. The restrictions, which expand China’s control over the global supply of critical minerals used in electronics, defense systems, and renewable energy, came just a day before Trump threatened to impose “triple-digit” tariffs on Chinese goods. The tit-for-tat moves sent financial markets tumbling and revived memories of the turbulent trade battles that defined much of Trump’s first term in office.

Over the past week, Bessent and other senior administration officials have launched a series of public interventions aimed at calming investors and preventing the situation from spiraling.

Bessent on Wednesday rejected Beijing’s claim that its decision to tighten rare earths export controls was a reaction to U.S. measures, arguing that China had “clearly intended to take action all along.” He cited a prior warning from a mid-level Chinese trade official who, according to Bessent, had issued threats in August suggesting Beijing might seek to “unleash chaos” on the global economic system if Washington proceeded with new docking fees for Chinese ships.

“There was a lower-level trade person who was slightly unhinged here in August,” Bessent said, referring to the episode. “They were saying that China would unleash chaos on the global system if the U.S. went ahead with our docking fees for Chinese ships.”

That fee proposal — introduced by Washington in mid-August — aimed to level the competitive costs faced by U.S. and foreign shipping companies amid what American officials have called “chronic trade imbalances” in logistics and port operations. The move angered Beijing, which accused Washington of “weaponizing maritime policy.”

The exchange has since drawn attention to the fragile balance between the two economies. For Washington, the latest flare-up underscores Trump’s ongoing effort to pressure China into broader trade concessions while still avoiding economic disruption ahead of a critical election year. For Beijing, it signals a willingness to push back more forcefully, particularly through strategic industries like rare earths — resources essential to the global technology and defense sectors.

Trump’s planned meeting with Xi in South Korea is now seen as a pivotal attempt to restore dialogue and avert a deeper rupture. Both leaders have been in communication since Trump returned to the White House, but their relationship has been tested by disagreements over tariffs, technology restrictions, and geopolitical flashpoints from Taiwan to the South China Sea.

Bessent framed the upcoming meeting as an opportunity to “reset expectations” rather than negotiate any new deal.

Behind the scenes, officials say the Treasury Department and China’s Ministry of Commerce have maintained an unusually high level of communication, even as tensions flared.

The Treasury Secretary, a longtime investor and former hedge fund executive, has emerged as one of the administration’s key voices on China, often tempering Trump’s more aggressive trade rhetoric with reassurances to global markets. His latest comments reflect an awareness that even verbal exchanges between Washington and Beijing can quickly ripple through currency markets and commodity prices.

Indeed, the prospect of a renewed trade war has already stirred volatility across sectors. Rare earths prices surged after China’s announcement, while the dollar fell as investors shifted toward safe-haven assets. Wall Street analysts have warned that a full-blown conflict could disrupt global supply chains just as manufacturing output shows signs of recovery.

Yet, some analysts say Trump’s tariff threat may have been designed less as an immediate measure and more as leverage to secure cooperation in other areas — including trade transparency and currency stability. The administration is believed to be using tariffs the way past governments used diplomacy — as a signaling device.

For China, the expansion of rare earths controls fits within a broader strategy of leveraging its dominance in critical minerals to gain a strategic advantage. China currently supplies about 70% of the world’s rare earths, which are vital in producing semiconductors, electric vehicles, and advanced weapons systems. The move could complicate U.S. efforts to expand domestic production and reduce dependence on Chinese materials — goals that have been central to Trump’s economic agenda since his return to office.

Bessent’s emphasis on restraint points to broader anxiety among U.S. businesses that another round of tariffs or export controls could reignite inflationary pressures and disrupt supply chains. Companies across sectors — from automotive to electronics — are still recovering from the shocks of the last major trade war between the two nations, which contributed to years of price instability.