By Xinghui Kok
KUALA LUMPUR (Reuters) -Top economic officials from the U.S. and China will face off in Kuala Lumpur on Saturday to try to avert an escalation of their trade war and ensure that a meeting happens next week between U.S. President Donald Trump and Chinese President Xi Jinping.
The talks on the sidelines of the Association of Southeast Asian Nations summit will seek to find a way forward after Trump threatened new 100% tariffs on Chinese goods and other trade curbs starting on November
1, in retaliation for China's vastly expanded export controls on rare earth magnets and minerals.
The recent actions, which also include an expanded U.S. export blacklist that covers thousands more Chinese firms, have disrupted a delicate trade truce crafted by U.S. Treasury Secretary Scott Bessent, U.S. Trade Representative Jamieson Greer and Chinese Vice Premier He Lifeng over four previous meetings since May.
The three officials on Saturday will try to pave the way for Trump and Xi to meet next Thursday at an Asia-Pacific Economic Cooperation summit in South Korea, a high-stakes conversation that could revolve around some interim relief on tariffs, technology controls and Chinese purchases of U.S. soybeans.
First, He, Bessent and Greer must find a way to mitigate their dispute over China's rare earths controls and U.S. technology export curbs, said Josh Lipsky, international economics chair at the Atlantic Council in Washington.
"The meeting can't happen without an agreement that they can return to this intermediate ceasefire that we've had over the summer," Lipsky said, adding that the U.S. wants to reverse and end China's new rare earths controls.
"I'm not sure the Chinese can agree to that. It's the primary leverage that they have," Lipsky said.
The Malaysian government and the U.S. and Chinese sides have provided very few details about the Kuala Lumpur meeting or any plans to brief the media about outcomes. The meeting's venue was not confirmed until Chinese officials began arriving at the Merdeka 118 tower, the second-tallest building in the world.
Some of those announcements may fall to Trump, who is due to arrive in the Malaysian capital on Sunday.
"We won't know if Beijing has successfully counterbalanced the U.S.'s export controls with restrictions of their own or if they've induced a continuation of an escalatory spiral until Trump and Xi meet," said Scott Kennedy, a China economics expert at the Center for Strategic and International Studies in Washington.
"If they make a deal, their gambit will have paid off. If there's no deal, then everyone will need to prepare for things to get much nastier," Kennedy said.
RARE EARTHS STRANGLEHOLD
The world's two largest economies are seeking to avoid a return of their tariff escalation to triple-digit levels on both sides that exploded in April when Trump imposed broad global tariffs. China also responded to Trump's tariffs by cutting off rare earths supplies to U.S. buyers.
Bessent and Greer's first meeting with He in Geneva in May led to a 90-day truce, which brought down tariffs sharply to about 55% on the U.S. side and 30% on the Chinese side and restarted the flow of magnets. The truce was extended in subsequent talks in London and Stockholm and was due to expire on November 10.
But the delicate truce frayed at the end of September, when the U.S. Commerce Department vastly expanded a U.S. export blacklist to automatically include firms more than 50% owned by companies already on the list, banning U.S. exports to thousands more Chinese firms.
China struck back with the new global rare earth export controls on October 10, aiming to prevent their use in military systems by requiring export licenses for products using Chinese rare earths or rare earth refining, extraction or processing technology developed by Chinese firms.
Bessent and Greer blasted China's move as a "global supply chain power grab" and vowed the U.S. and its allies would not accept the restrictions. Reuters reported that the Trump administration is considering a plan to up the ante with curbs on a dizzying array of software-powered exports to China, from laptops to jet engines, according to sources familiar with the deliberations.
The Trump administration added to the tension on Friday by announcing a new tariff probe into China's "apparent failure" to meet the terms of the 2020 U.S.-China "Phase One" trade agreement that halted their trade war during Trump's first term.
The move could create an additional legal authority for Trump to further increase tariffs on Chinese imports. China committed to major increases in purchases of U.S. farm products, manufactured goods, energy and services in the 2020 deal, but the targets were never met.
That also could lead the U.S. side to press Beijing to resume buying American soybeans after China bought none in September, heaping economic pain on farmers, a key Trump political constituency.
(Reporting by Xinghui Kok Rozanna Latiff and Danial Azahar in Kuala Lumpur and David Lawder in Washington; Writing by David Lawder; Editing by Tom Hogue)
