Trump and Xi seek trade deal, but AI, tariffs and Iran become big issues

President Donald Trump and Chinese leader Xi Jinping’s goals to strengthen trade stability and win economic victories could be undermined by an escalating debate over artificial intelligence, U.S. tariff changes and Iran war-related sanctions operations.

The two leaders are expected to explore ways to strengthen the fragile trade ceasefire when they meet in Washington for their second face-to-face summit this year.

Despite the friendly tone leading up to the summit, both countries continue to make accusations and launch retaliatory trade actions.

Treasury Secretary Scott Bessent said in an interview on CNBC’s “Squawk Box” on Monday that Trump and Xi’s “tremendous respect” for each other also has implications for broader U.S.-China negotiations.

He also pointed out that as part of the trade deal that President Trump and President Xi agreed to in Busan, South Korea, about a year ago, there were “several deliverables that China did not fully implement.”

Some Chinese analysts have expressed concern about the unusual top-down diplomatic arrangement between the two economic powers.

Claire Reed, senior associate to the director’s chair for China business and economics at the Center for Strategic and International Studies, said that “many contradictory views seem to be jostling” as President Trump prescribes a “comprehensive approach” to China while “inspiring more negative actions around it.”

The summit comes with less than six weeks left in the U.S. election period, where concerns about Americans’ cost of living are a major focus. Trump, whose polling approval ratings on this key issue are at record lows, has even more incentive to pull out of a summit with Xi touting some sort of economic deal.

Here’s the current state of U.S.-China trade relations and what’s at stake from a meeting between Trump and Xi.

Last year’s explosive trade war saw both economic giants raise tariffs on each other’s products to dizzying heights. U.S. taxes on Chinese imports reached 145% at the peak of the dispute, while China’s retaliatory tariffs reached 125%.

These tariffs were lowered in May 2025 after Swiss trade negotiators concluded a preliminary agreement, which was extended to mid-August. Later, President Trump and President Xi Jinping reached an agreement in Busan, under which the two countries would further reduce retaliatory trade measures.

As part of the deal, China suspended rare earth export controls and agreed to buy U.S. agricultural products, and the U.S. lowered some tariffs and halted other trade retaliation. The agreement is scheduled to last one year and, unless extended, will expire on November 10, one week after the US presidential election.

Despite the cooling, the two countries continue to impose high tariffs on each other’s products, according to multiple analyses. As of July, the effective tariff rate on Chinese goods was 22.8%, the highest of any major U.S. trading partner, with steel and aluminum imports facing the heaviest tariffs, according to the University of Pennsylvania’s Penn Wharton Budget Model.

Estimates from the Congressional Research Service are even higher: the average U.S. tariff on China in July was about 36.5%, while Beijing’s tariffs on U.S. goods were 31%.

According to U.S. Census data, U.S. trade with China will sharply decline in 2025, with total goods trade down nearly 30% from the previous year. And the first seven months of 2026 show continued decline. However, the Chinese government remains the US government’s main economic partner, second only to Mexico and Canada. Until 2019, China was the United States’ largest trading partner.

President Trump has long complained that the United States maintains large trade deficits with other countries, including China, even as he advocates a revival of domestic manufacturing. The U.S. trade deficit with China so far this year is smaller than the same period in 2025, but it remains the world’s highest at about $91.2 billion.

President Trump and President Xi last met in mid-May at a state dinner in Beijing, part of a whirlwind summit filled with pomp and atmosphere but ultimately lacking in results.

Many China watchers are expecting a similar outcome this time around.

China analysts at Bank of America Global Research said in a note to clients last week that a one-year extension of the trade ceasefire is “our base case.” This extension would maintain the status quo on tariffs and prohibit new export restrictions, but was a major sticking point before the Busan meeting.

China may also agree to purchase additional U.S. products, which “could include the purchase of additional Boeing aircraft.” After Beijing, countries confirmed that China would buy 200 Boeing aircraft, but the number was lower than some investors had expected.

“We expect progress to be limited in other areas,” including expanded access to advanced semiconductors and changes to export regulations still in place, the bank’s analysts said.

Other China experts agreed.

Ryan Hass, director of the John L. Thornton China Center at the Brookings Institution, told CNBC in an email that both Mr. Trump and Mr. Xi “seem to be making do with small profits and conflict avoidance.”

“A precarious equilibrium is maintained because it serves dual roles for both leaders,” Hass explained. “First, it would allow both leaders to signal to the public that they have the situation with their arch-geopolitical rivals under control. Second, it would buy both leaders time and space to reduce dependence and vulnerability from the other.”

Mr. Bessent appeared to confirm some of those predictions on Monday morning, telling CNBC that he “thinks we will maintain” the tariff truce.

“That was the focus” of his weekend talks with Chinese Vice Premier He Lifeng, Bessent said, adding: “The relationship has been very stable since last fall.”

Bessent also suggested that progress had been made on the $30 billion reciprocal tariff reduction deal that the Chinese government struck earlier this month.

Bessent said U.S. Trade Representative Jamison Greer “made it viable” for the proposal, which he called “a 30-30 trade deal on non-critical items.”

Bessent told CNBC that the U.S. deal includes sales of products such as agriculture, energy and medical equipment, while China “will bring in more everyday goods.”

CSIS’s Reid told CNBC that the US may only want a limited extension of the trade ceasefire.

The ceasefire is an important source of U.S. influence, and “they won’t want to extend it too far into the future and give up that influence,” said Reid, who served as assistant U.S. trade representative for China in the Obama administration.

Bessent said AI will be a top agenda item for Trump and Xi. They will have a lot to talk about.

The United States and China are competing to lead an emerging industry that is becoming central to the global economy. President Trump believes that the advantages of AI and America’s economic advantage are closely linked, and he strongly encourages the construction of AI infrastructure with minimal regulatory interference.

“There is a SICK conspiracy going on against AI and data centers, and only China is happy about it,” President Trump wrote on Truth Social last week. “Whoever wins against AI wins! We are leading China and all other countries and will continue to do so.”

But some top U.S. AI companies are sounding the alarm about the potentially devastating risks posed by the rapid development of advanced AI models.

Those calls drew a rebuke from President Trump. But in a post on Truth Social on Monday, Trump said the government would “hold back on things if necessary,” signaling at least a slight shift from the laissez-faire attitude he might bring to his meeting with Xi.

Bessent said on Sunday that he and the Chinese side had discussed establishing a dialogue where the two countries could inform each other about AI incidents.

President Trump’s recent moves in the war against Iran may also weigh on Xi’s visit.

Last month, the United States began efforts to weaken Iran’s economy by targeting its financial enablers. The plan immediately attracted the attention of China, Iran’s largest trading partner.

The Trump administration has said no country will be exempt from potential sanctions, but has not yet directly targeted the Chinese government.

Bessent told CNBC on Monday that he “discussed” these sanctions in a meeting with Chinese officials over the weekend.

“It’s better to discuss it quietly behind the scenes than to discuss it in public,” Bessent said, adding that China’s financial authorities are “very committed to this process.”

As in Beijing, top executives from a number of companies will once again take part in the celebrations.

A senior U.S. official told reporters last week that the CEO was expected to attend Thursday’s state dinner. AmazonJeff Bezos, Elon Musk tesla and space x, googleSundar Pichai, Michael Dell Dell and apple Tim Cook, Executive Chairman; CNBC previously reported his planned attendance. JP Morgan Chase CEO Jamie Dimon said: citygroup Secretary Jane Fraser, Nvidia CEO Jensen Huang and OpenAI’s Sam Altman.

There are other signs that President Trump is planning extravagant events for the Chinese leader. First lady Melania Trump’s office announced that Xi’s ceremony will include a presidential salute by U.S. Marines on the South Lawn of the White House, followed by a military review ceremony in the Rose Garden featuring a rooftop messenger trumpet blast, and conclude with a high-flying aircraft flight.

The first lady posted a video last week touting her elaborate plans for the state dinner. When Xi arrives at Joint Base Andrews in Maryland, the president himself is expected to greet him on the tarmac.