Trump Claims China Broke Trade Deal as Tariff War Threatens to Reignite

Trump Accuses China of "Totally Violating" Tariff Truce, Threatening New Trade War Escalation

Market turbulence returns as fragile US-China détente shows signs of collapse amid rare earth magnet supply concerns and legal challenges to presidential tariff authority

The brief respite in US-China trade tensions shattered Friday as President Donald Trump accused Beijing of "totally violating" their two-week-old tariff agreement, sending markets tumbling and raising the specter of renewed economic confrontation between the world's largest economies.

@realDonaldTrump: Two weeks ago China was in grave economic danger! The very high Tariffs I set made it virtually impossible for China to TRADE into the United States marketplace which is, by far, number one in the World. We went, in effect, COLD TURKEY with China, and it was devastating for them. Many factories closed and there was, to put it mildly, “civil unrest.” I saw what was happening and didn’t like it, for them, not for us. I made a FAST DEAL with China in order to save them from what I thought was going to be a very bad situation, and I didn’t want to see that happen. Because of this deal, everything quickly stabilized and China got back to business as usual. Everybody was happy! That is the good news!!! The bad news is that China, perhaps not surprisingly to some, HAS TOTALLY VIOLATED ITS AGREEMENT WITH US. So much for being Mr. NICE GUY!

The accusation threatens to unravel the May 12 Geneva agreement that temporarily reduced punishing tariffs—which had reached as high as 145% on Chinese goods—down to 30% from the US side and 10% from China for a 90-day negotiation period.

Choke Points Emerge in Critical Supply Chains

US Trade Representative Jamieson Greer has previously highlighted China's sluggish removal of non-tariff countermeasures as a potential flashpoint. Most concerning to US officials: Beijing's handling of rare earth magnet exports, which have transformed from a three-day customs clearance process to a prolonged 3-4 week ordeal.

These specialized magnets—containing elements like neodymium, praseodymium, and samarium—are critical components in everything from electric vehicles to defense systems. The strategic bottleneck has already prompted concerns from European and Indian automakers about imminent production disruptions.

"China isn't matching US tariffs tick-for-tick anymore," said one market strategist who requested anonymity due to the sensitivity of ongoing negotiations. "They're targeting non-substitutable inputs with surgical precision, showing they can dial pain up or down as negotiations require."

Parallel Pressure Campaigns Undermine Goodwill

Despite the tariff truce, the Trump administration has intensified technology restrictions against Chinese entities in recent weeks:

• Ordering chip design software providers including Cadence, Synopsys, and Siemens EDA to halt sales to Chinese firms
• Beginning revocation of Chinese student visas in STEM fields
• Blocking Huawei Technologies from selling advanced AI chips globally

Beijing has responded by deploying blacklists against 12 US defense contractors and 28 technology companies, measures described by officials as "painful but reversible" depending on negotiation outcomes.

"These moves operate orthogonal to tariff talks and signal a structural decoupling trend, not merely tactical leverage," noted a Hong Kong-based analyst at a major investment bank.

Looming Legal Challenge Could Strip Trump's Tariff Authority

Complicating the standoff further, a US trade court ruled Wednesday that Trump exceeded his authority in implementing most tariffs on Chinese imports under the International Emergency Economic Powers Act of 1977 . While a federal appeals court quickly paused this ruling pending review, the legal uncertainty adds another dimension to already precarious negotiations.

The accelerated appeals schedule—with plaintiff briefs due June 5 and government responses by June 9—means the tariff authority question could be resolved within weeks, potentially stripping Trump of his primary leverage tool just as tensions reignite.

"We're now dealing with two-dimensional policy uncertainty," explained a Washington-based trade attorney. "The bilateral negotiation track and a fast-moving court battle that could fundamentally alter the president's economic toolkit."

Markets React as Relief Rally Evaporates

The S&P 500's 5% rally since the truce announcement has begun unwinding, with futures dropping 0.5% immediately following Trump's accusation. The SPDR S&P 500 ETF Trust traded at $587.78 on Friday afternoon, down $2.27.

Interestingly, MP Materials Corporation—America's only rare earth mining and processing company—gained $0.40 to $20.17, reflecting investor bets on potential supply chain realignment should tensions escalate further.

"The market is pricing in a renewed tariff spiral," said one portfolio manager. "Risk mood has flipped from relief to caution practically overnight."

Negotiation Stalemate and Potential Paths Forward

Treasury Secretary Scott Bessent described trade discussions as "a bit stalled" on Thursday, suggesting direct involvement from both President Trump and Chinese President Xi Jinping would likely be necessary to revitalize talks.

"I believe the Chinese will engage when President Trump articulates his expectations," Bessent stated, hinting at a possible mid-June call between the leaders.

Meanwhile, Chinese trade expert Huo Jianguo emphasized the need to prepare for both negotiations and prolonged confrontation. China's foreign affairs ministry has declined to comment on Trump's latest accusations, while its commerce ministry previously announced a consultation mechanism to maintain communication.

Xi Jinping's Unusual Absence Highlights Deepening Internal Rifts Over U.S. Policy

In the past ten days, Chinese President Xi Jinping has been notably absent from public view, sparking widespread speculation and concern. While he continues to issue written instructions and hold phone calls with foreign leaders, his physical appearances—such as attending meetings, hosting foreign dignitaries, or conducting inspections—have stopped entirely since May 20. This level of invisibility is highly unusual for Xi and has raised eyebrows, especially given the persistence of rumors about political tension within the Communist Party. At the same time, Premier Li Qiang has taken a conspicuously active public role, dominating headlines with frequent engagements. The timing has led many observers to suspect internal power struggles, possibly linked to diverging views among party elites over how to manage China’s increasingly strained relationship with the United States. The broader context suggests growing factional divides within the leadership, with competing stances on foreign policy and domestic messaging contributing to a sense of instability at the top.

What's at Stake: A 12-Week Horizon

Professional investors are now calibrating positions for three potential scenarios by August 12, when the 90-day pause expires:

1. Negotiated extension (55% probability): Tariffs remain at current reduced levels with working groups established for specific issues like rare earth magnets
2. Legal cliff-edge (15% probability): Appeals court lifts stay, invalidating tariffs and forcing Trump to scramble for alternative tools
3. Full escalation (30% probability): Trump reimposes 145%+ duties while China formally bans exports of seven critical rare earth elements

"The market's worst-case—simultaneous tariff snap-back and legal disarmament—is internally inconsistent," noted one macro strategist. "The White House's reality check is the US bond market, not Geneva. Trump can raise tariffs only if courts permit it and bond investors keep funding a widening fiscal gap."

Beyond the Headline Volatility

For business leaders navigating this uncertainty, experts recommend focusing on structural supply chain vulnerabilities rather than day-to-day political rhetoric.

"Companies should view non-tariff measures like export controls and visa restrictions as permanent features of the landscape regardless of duty rates," advised a supply chain consultant. "The deeper decoupling continues even when headline tariffs fluctuate."

With key court dates in early June and the potential leader-to-leader call by mid-month, the coming weeks will determine whether this latest accusation represents negotiating posture or genuine collapse of the fragile trade truce—with global markets, supply chains, and economic growth hanging in the balance.