US-China Trade Truce Hangs in the Balance as July Deadline Looms
Both sides claim progress, but fundamental disagreements remain
The one-year trade truce negotiated between Washington and Beijing in October 2025 is approaching its expiration, and the two sides have yet to agree on an extension. In a May 19, 2026 interview with Reuters, US Treasury Secretary Scott Bessent said the US was “not in a hurry” to extend the truce, signaling that the administration wants to see more concrete concessions from Beijing before committing.
The truce, reached during the Busan summit in October 2025, reduced reciprocal tariffs on Chinese goods to lower levels while negotiations continued. Section 301 tariffs were not affected and remain at their full rates.
Five breakthroughs — and what they don’t cover
On May 16, 2026, China’s Ministry of Commerce disclosed details of preliminary trade negotiations held after a May 14 summit in Beijing. Five areas showed progress:
- Tariff arrangements: new consensus on specific tariff structures and implementation timelines
- Institutional framework: establishment of a Trade Council and Investment Council for permanent dialogue
- Agricultural access: reciprocal removal of trade barriers, including resolution of US “automatic detention” of Chinese dairy and aquatic products
- Trade expansion: commitment to mutual tax reductions on specific goods
- Aerospace cooperation: Chinese aircraft procurement matched with guaranteed US supply of engines and parts
But the big issues remain unresolved: technology export controls, semiconductor restrictions, data flows, and the fundamental question of whether the US will allow China to continue subsidizing its strategic industries.
The Section 301 forced labor gambit
On June 2, the USTR proposed a new 12.5% tariff on China based on a Section 301 investigation into forced labor — one of two investigations launched on March 12. The move is designed to reinstate tariffs that the Supreme Court struck down, using a different legal authority.
China condemned the proposal but stopped short of announcing countermeasures. Analysts believe Beijing is holding back because the tariffs, if kept within the negotiated rate from the Busan agreement, are tolerable. The risk is the second investigation — into excess capacity — which could result in additional tariffs that exceed the agreed ceiling.
What businesses are doing
Companies are not waiting for clarity. Supply chain diversification continues at pace, with Vietnam, India, and Mexico absorbing manufacturing capacity that previously went to China. But China’s infrastructure advantages — port capacity, rail networks, supplier density — mean that full decoupling remains impractical for most industries.
A survey by the American Chamber of Commerce in China, published in May 2026, found that 62% of member companies had implemented some form of supply chain diversification, but only 12% had moved more than 20% of their China production elsewhere.
Sources
- China Briefing, “US-China Trade Tariffs: What’s in Effect Now?” June 3, 2026
- FreshFromChina, “China-U.S. Trade Deal 2026: What the Ministry of Commerce Just Revealed”
- Reuters, “US not in hurry to extend China trade truce: Bessent,” May 19, 2026
- AmCham China, Business Climate Survey, May 2026