In Gyeongju, South Korea, President Donald Trump is set to meet with Chinese President Xi Jinping on Thursday. This encounter comes at a crucial time as the two leaders aim to mend the strained relations between their nations, the world’s largest economies, amidst ongoing trade tensions.

The urgency of this meeting stems from Trump’s assertive tariff policies since resuming his presidency, met with China’s counteraction through restrictions on the export of rare earth elements. Both nations are acutely aware that escalating these tensions could potentially harm the global economy and their own economic stability.

As they met, Trump expressed optimism about the discussions, stating, “We’re going to have a very successful meeting, I have no doubt.” Acknowledging Xi’s negotiation skills, Trump noted their mutual understanding and hinted at the possibility of reaching an agreement.

During the meeting, President Xi addressed the inherent differences between the two countries, emphasizing a spirit of cooperation despite these disparities. “Given our different national conditions, we do not always see eye to eye with each other,” Xi remarked through a translator. “It is normal for the two leading economies of the world to have frictions now and then.”

In the days leading up to this pivotal meeting, U.S. officials have indicated that Trump might refrain from implementing a steep 100% import tax on Chinese products. In response, China has shown willingness to ease its export restrictions on rare earth elements and has also signaled interest in purchasing American soybeans.

In the days leading up to the meeting, U.S. officials have signaled that Trump does not intend to make good on a recent threat to impose an additional 100% import tax on Chinese goods – and China has shown signs it is willing to relax its export controls on rare earths and also buy soybeans from America.

The meeting began roughly at 11 a.m. (10 p.m. ET) in Busan, South Korea, a port city about 76 kilometers (47 miles) south from Gyeongju, the main venue for the Asia-Pacific Economic Cooperation summit. Trump’s helicopter landed at 10:17 a.m. local time, with an Air China plane rolling on the tarmac about 10 minutes later.

At a dinner on Wednesday night with other APEC leaders, Trump was caught on a microphone saying the meeting with Xi would be “three, four hours” and he would then go home to Washington.

Officials from both countries met earlier this week in Kuala Lumpur to lay the groundwork for their leaders. Afterward, China’s top trade negotiator Li Chenggang said they had reached a “preliminary consensus,” a statement affirmed by U.S. Treasury Secretary Scott Bessent who said there was ” a very successful framework.”

Trump told reporters while flying to South Korea aboard Air Force One that he may reduce tariffs that he placed on China earlier this year related to its role in making fentanyl.

“I expect to be lowering that because I believe that they’re going to help us with the fentanyl situation,” Trump said, later adding, “The relationship with China is very good.”

Shortly before the meeting on Thursday, Trump posted on Truth Social that the meeting would be the “G2,” a recognition of America and China’s status as the world’s biggest economies. The Group of Seven and Group of 20 are other forums of industrialized nations.

But while those summits often happen at luxury spaces, this meeting is taking place in humbler settings. Trump and Xi will be talking in a small gray building with a blue roof on a military base adjacent to Busan’s international airport.

The anticipated detente has given investors and businesses caught between the two nations a sense of relief. The U.S. stock market has climbed on the hopes of a trade framework coming out of the meeting.

However cordial the rhetoric, Trump and Xi remain on a potential collision course as their countries vie to dominate manufacturing, develop emerging technologies such as artificial intelligence and shape world affairs such as the status of Russia’s war in Ukraine. Trump indicated that he did not plan to bring up issues such as the security of Taiwan with Xi.

“The proposed deal on the table fits the pattern we’ve seen all year: short-term stabilization dressed up as strategic progress,” said Craig Singleton, senior director of the China program at the Foundation for Defense of Democracies. “Both sides are managing volatility, calibrating just enough cooperation to avert crisis while the deeper rivalry endures.”

The U.S. and China have each shown they believe they have levers to pressure the other, and the past year has demonstrated that tentative steps forward can be short-lived.

For Trump, that pressure comes from tariffs.

Right now, China had faced new tariffs this year totaling 30%, of which 20% has been tied to its role in fentanyl production. But the tariff rates have been volatile. In April, he announced plans to jack the rate on Chinese goods to 145%, only to abandon those plans as markets recoiled.

Then, on Oct. 10, Trump threatened a 100% import tax because of China’s rare earth restrictions.

Xi has his own chokehold on the world economy because China is the top producer and processor of the rare earth minerals needed to make fighter jets, robots, electric vehicles and other high-tech products.

China had tightened export restrictions on Oct. 9, repeating a cycle in which each nation jockeys for an edge only to back down after more trade talks.

What might also matter is what happens directly after their talks. Trump plans to return to Washington, while Xi plans to stay on in South Korea to meet with regional leaders during the Asia-Pacific Economic Cooperation summit, which officially begins on Friday.

“Xi sees an opportunity to position China as a reliable partner and bolster bilateral and multilateral relations with countries frustrated by the U.S. administration’s tariff policy,” said Jay Truesdale, a former State Department official who is CEO of TD International, a risk and intelligence advisory firm.

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Boak reported from Tokyo.

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This story has been corrected to show that Trump and Xi are set to meet at 10 p.m. ET.