Key Takeaways
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- Chinese analysts expect US to dial back Sept. 29 “affiliates rule” (restricting chip sales to subsidiaries of blacklisted Chinese firms like Huawei) in exchange for China delaying rare-earth export controls “for a year.”
- Top negotiators unveiled tentative deal Sunday for Trump-Xi to finalize Thursday; Bessent said China will delay rare-earth restrictions, but declined to confirm export control changes. Fudan analyst: China expects “more than tariff relief.”
- Sept. 29 BIS rule makes subsidiaries 50%+ owned by blacklisted firms subject to same curbs; Beijing viewed it as violating Madrid talks mechanism. China responded with sweeping rare-earth export controls.
- Precedent: June deal saw China restart rare-earth shipments after US walked back threats on chip design software, jet engine parts, nuclear materials. China hawks oppose using export rules as bargaining chips.
What Happened?
Chinese analysts expect the US to moderate a Sept. 29 export control rule that vastly expanded restrictions on selling cutting-edge chips to subsidiaries of Chinese companies on Washington’s entity list, in exchange for China delaying its latest rare-earth export controls. Top trade negotiators unveiled a tentative deal Sunday for Trump and Xi to finalize Thursday in South Korea, covering tariffs, shipping fees, fentanyl, and export controls.
US Treasury Secretary Bessent said China will delay rare-earth restrictions “for a year” but said there had been “no changes” in US export controls. Beijing-based Hutong Research wrote that “Beijing appears to have pushed for a quid pro quo: suspension of the ‘affiliates rule’ in exchange for delaying rare-earth export controls,” predicting Trump will “pause enforcement before formally deregulating it.”
Fudan University’s Wu Xinbo said China expects “more than tariff relief,” listing export controls and the Sept. 29 BIS 50% rule as areas of potential progress. The Sept. 29 rule makes subsidiaries at least 50% owned by blacklisted firms (like Huawei) subject to the same curbs, making it harder to access restricted US goods through affiliates. Beijing viewed the move as violating the Madrid talks mechanism; China responded with sweeping rules asserting global control over shipments containing trace amounts of rare earths.
When China stopped supplying magnets earlier this year, several US factories suspended operations. Precedent exists: in June, after China restarted rare-earth shipments, Trump walked back threats on chip design software, jet engine parts, and nuclear materials. Using export rules as bargaining chips is controversial among China hawks, but Hutong analysts said “few Republican lawmakers are willing to openly challenge” Trump ahead of budget battles and elections.
Why It Matters
The potential export control rollback signals Trump prioritizing economic relief (rare-earth access for US factories) over national security hawks’ concerns about keeping sensitive tech from China. For investors, easing the Sept. 29 “affiliates rule” would be a major win for Huawei and Chinese AI/chip firms, allowing them to access restricted US components through subsidiaries—undermining the Biden-era strategy of choking off China’s semiconductor ecosystem. Rare earths are China’s most potent trade weapon, underpinning US production of chips, EVs, defense systems, and renewables; any delay in export controls removes a critical supply-chain risk for US manufacturers and tech firms. The quid pro quo framework (export control relief for rare-earth access) establishes a precedent for future negotiations, making US tech restrictions a bargaining chip rather than a fixed national security red line. For China, securing export control relief would ease pressure on Huawei, SMIC, and other champions, boosting domestic AI/chip development. For US tech (Nvidia, AMD, Intel), the outcome is mixed: easing restrictions could restore some China revenue, but also strengthens Chinese competitors long-term.
What’s Next
Watch Thursday’s Trump-Xi summit for details on export control changes and rare-earth delay timelines. Monitor whether the US formally rolls back the Sept. 29 affiliates rule or just pauses enforcement. Track China’s rare-earth shipments and whether US factories resume operations. For semiconductors, watch Huawei’s access to restricted chips and any impact on Nvidia/AMD China sales. Monitor China hawk pushback in Congress and whether Trump faces legislative opposition. Longer term, track whether export controls remain bargaining chips or return to national security red lines. Risks: deal collapses, China reneges on rare-earth delay, or US hawks block export control rollback. Catalysts: formal export rule changes, rare-earth shipment resumption, or Huawei breakthroughs using newly accessible tech.
