US-China Working Groups Resume as Truce Tests Dialogue Over Decoupling
Treasury's formal channels with Beijing signal policy shift, but semiconductor delays and currency gaps reveal limits of institutional détente.
The United States and China are relying on formal economic and financial working groups to manage competition as tariffs stabilize at 30% (US) and 10% (China) following the May 14-15 Trump-Xi summit in Beijing. The institutional framework, launched in September 2023 and continued under Treasury Secretary Scott Bessent, represents the Biden-Trump administrations’ shared bet that dialogue can prevent escalation even as both sides pursue advantages in semiconductors, currency markets, and capital access.
The working groups held their seventh formal meeting in Nanjing on December 15-16, 2025, according to the Treasury Department, covering macroeconomic developments, swap practices, cross-border payments, and anti-money laundering cooperation. The May summit established a tentative trade truce after months of escalation that had pushed tariffs to 145% (US) and 125% (China). The White House claims China agreed to $17 billion in annual agricultural purchases and 200 Boeing aircraft orders, though NPR reports China’s Ministry of Commerce provided only limited confirmation, noting outcomes remain pending finalization.
30%
10%
3.5%-3.75%
Structural Tensions Persist Despite Framework
The working groups operate under formal mandates to address macro policy coordination, debt sustainability, and financial stability. Yet key structural issues remain unresolved. China has elevated the yuan to the fifth most active currency in global payments, and the People’s Bank of China provided $16.4 billion via foreign-exchange swap lines by March 2026—the steepest quarterly increase in three years, according to Fortune. But the yuan still accounts for just 2% of central bank reserves versus China’s 17% share of global GDP, reflecting persistent capital controls and limited convertibility.
Semiconductor policy illustrates the administration’s balancing act. New tariffs on Chinese chips were delayed to June 23, 2027, starting at 0% before escalating after 18 months, according to TechSpot, reflecting the White House’s desire to maintain pressure on Beijing without triggering immediate supply chain disruptions. Existing 50% Section 301 tariffs remain in place, and the Nvidia-AMD arrangement permitting limited AI chip exports to China in exchange for 25% US government revenue share continues. The delay gives working group discussions runway to address semiconductor supply chains without forcing immediate escalation.
“The United States and China did not bridge their differences. They agreed to manage them—and to call that management stability.”
— James M. Lindsay, Senior Fellow for China Studies, Council on Foreign Relations
Markets Navigate Policy Uncertainty
The Federal Reserve maintained its target rate at 3.5%-3.75% at the April 29 meeting, according to the Fed, with markets pricing in two 25-basis-point cuts for late Q3/Q4 2026 or early Q1 2027. But Chair Jerome Powell’s term expired May 15, creating transition uncertainty as fixed income markets navigate elevated policy ambiguity. The Economic Policy Uncertainty Index for the US reached 151.67 in May, per Trading Economics, near record highs.
LPL Financial forecasts the 10-year Treasury yield will remain between 3.75%-4.25% in 2026, with corporate credit spreads historically tight despite idiosyncratic risks tied to Trade Policy and geopolitical friction. Business sentiment reflects cautious optimism: 79% of AmCham China survey respondents in January held neutral or positive outlooks for US-China Relations, with 14% reporting major improvements.
Divergent Strategic Objectives
The working groups operate under different strategic logics. The US seeks to preserve dollar dominance and financial system openness while constraining China’s access to advanced technology. China aims to internationalize the yuan, secure capital markets access, and reduce vulnerability to US sanctions. Analysis from the Council on Foreign Relations notes that both sides define “strategic stability” differently: Washington emphasizes maintaining the rules-based order; Beijing prioritizes sovereignty and development rights.
President Xi framed the summit as an opportunity to “overcome the Thucydides Trap and create a new paradigm of major-country relations,” positioning 2026 as a potential landmark year. Treasury officials, meanwhile, have emphasized the need to “reduce frictions, avoid escalation of the situation, and resolve differences through consultation,” language that reflects institutional caution rather than strategic optimism.
The Economic and Financial Working Groups were formally established in September 2023 under Treasury Secretary Janet Yellen and Vice Premier He Lifeng. The Trump administration continued the framework under Secretary Scott Bessent, holding seven formal meetings through December 2025. The structure mirrors bilateral mechanisms used during prior periods of US-China tension, when institutional channels allowed technical-level dialogue to continue even as political relations deteriorated.
What to Watch
The Fed chair appointment will determine whether rate policy becomes a variable in trade negotiations or remains independent. Markets are monitoring whether working group meetings resume at a ministerial level before the June 2027 semiconductor tariff deadline, which would signal both sides see value in the dialogue framework. Currency policy remains critical: if China accelerates yuan internationalization through swap line expansion or capital account opening, it would test whether the US treats financial integration as stabilizing or destabilizing. Finally, the Board of Trade framework negotiations—mentioned in post-summit readouts but not yet formalized—could either institutionalize tariff management or collapse under the weight of semiconductor, agriculture, and intellectual property disputes. Earnings volatility and corporate guidance on China exposure in Q2 results will reveal whether businesses believe the truce is durable or tactical.