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US President Donald Trump and Chinese President Xi Jinping agreed on Thursday to launch a new round of talks, following their first known phone call since Trump’s return to the White House. The discussion, initiated by Trump, focused on tariffs and the supply of rare earth minerals, both critical issues for advanced manufacturing and technology. Trump acknowledged the US-China trade relationship had gotten “a little off track,” but said both sides are now “in very good shape.” In a social media post, he emphasized the conversation was “focused almost entirely on TRADE.” According to Chinese state media, Xi urged the US to adhere to the Geneva consensus and withdraw “negative measures” it has imposed on China.

Alongside tariffs, the call focused on the supply of rare earth minerals, an increasingly critical input for advanced manufacturing and technology. Chinese exports of advanced magnets, which are vital for cars, missiles, and wind turbines, have been halted at many ports as the government prepares a new rare earth regulatory control system. These curbs have prompted warnings of potential production halts from global automakers from Asia, Europe, and the US. Following the call, Trump, in a social media post, said “there should no longer be any questions respecting the complexity of Rare Earth products,” though he did not clarify any specific policy changes. There was no specific comment on rare earths from Chinese officials following the call.

Markets have responded cautiously so far, with the positive tone encouraging but the lack of a tangible breakthrough tempering sentiment. Chinese equities posted modest declines on Friday, while US equity futures are up 0.5% just ahead of the US open. In light of these developments, we make several observations for global investors:

The call should keep trade talks on track and avoid further escalation. The positive tone from Thursday’s call marks a clear shift from April’s peak US-China escalation, when both sides hardened their positions, rapidly increased tariffs, and dialogue stalled. Alongside the agreement to continue with high-level talks, Trump indicated that his threat to restrict US visas on Chinese students would be lifted for “vetted” individuals. Xi reiterated China’s position that “dialogue and cooperation is the only right choice.” Both sides agreed to enhance communication across foreign affairs, the economy, and trade. They also exchanged invitations for state visits, which have historically been built around large trade deals or private sector purchase agreements. However, other core disagreements remain in view, with the US focused on enforcement and controls, and China seeking the removal of punitive measures.

China’s rare earth dominance, and its willingness to wield it, is now clear. China’s control of the rare earth market has long been understood, with an estimated 97% of global rare earth supply and over 80% of refining capacity. The latest round of Chinese restrictions has exposed just how critical this market share now represents for global industries, ranging from autos and electronics to green power and defense. While some near-term loosening of China’s export restrictions is possible, all signs suggest China is building a permanent trade infrastructure around rare earth processing and exports to help it track and control distribution. The US is not alone in feeling economic pain; Japanese, South Korean, and European politicians and companies are also lobbying to restore and guarantee access.

Export and technology controls may be pulled into negotiations. Where Trump’s first term talks with China were anchored on big purchase agreements, this time around negotiators face more complex restrictions on technology and sensitive industries. Since the Geneva consensus, the US has actually widened its export curbs on AI and semi hardware to also include semiconductor design software. Trump’s move to include US Commerce Secretary Howard Lutnick in the next round of negotiations is another potential signal. On one hand, Lutnick is known for his hawkish stance on China, and indeed called for tougher enforcement on China tech export controls this week. On the other hand, his addition suggests that sensitive US export controls could be on the table as bargaining chips.

So we view the Trump-Xi call as a constructive step toward stabilizing trade relations, even if the path to a durable resolution remains challenging. We expect US tariffs to finish the year near 15% (up from 2.5% at the start of 2025), with headline risk continuing, but markets increasingly accustomed to ongoing negotiations. The US administration appears intent on avoiding a return to extreme tariffs, though sector-specific levies may rise after recent legal setbacks. On rare earths, we think China could ease export controls in the short term, but this leverage could be used again if tensions re-escalate. US efforts to diversify rare earth supply may gather pace, but building capacity outside China will take years and remains both costly and difficult to execute.

We continue to recommend investors use any near-term volatility on trade headlines to phase into equity markets or balanced portfolios. In addition to US equities, we see opportunities in Europe via our “Six ways to invest” theme and EMU small and mid-caps. We also like mainland China tech stocks, Taiwan, and India in Asia. In a risk scenario where China maintains strict rare earth exports, we think Chinese EV makers and their supply chains could benefit from increased foreign demand for finished parts reliant on the metals. We like equities of select ex-China resource companies with rare earth exposure. Gold has benefited from elevated trade tensions. For investors looking to allocate to the precious metal, we continue to see its value as a longer-term portfolio diversifier against adverse scenarios and heightened (geo)political risks.