By John Liu and Phil Mattingly, CNN

Hong Kong/Washington (CNN) — Trade negotiations between the United States and China will continue on Tuesday in London, with both sides trying to preserve a fragile truce brokered last month.

President Donald Trump has authorized his trade negotiating team, led by Treasury Secretary Scott Bessent, to ease up on some key export restrictions of US goods to China that Washington had put in place for national security concerns, three sources familiar with the matter told CNN.

In exchange for immediately easing or halting some export controls, the US wants China to release high volumes of rare-earth materials.

However, it appears the US may draw the line at easing export controls on some critical technology that it maintains is crucial for its competitiveness with China, the world’s second-largest economy.

Officials are expected to meet again on Tuesday at 10am local time, a source familiar with the matter told CNN, continuing talks held Monday at the ornate Lancaster House near Buckingham Palace.

At the White House, Trump said he is “only getting good reports” about the discussions. “We are doing well with China. China’s not easy,” he said Monday. “We want to open up China.”

Speaking after the end of the first day of talks, Bessent told reporters they had a “good meeting” and Commerce Secretary Howard Lutnick called the discussions “fruitful,” according to Chinese state-run broadcaster CGTN.

In London, Bessent, Lutnick and Trade Representative Jamieson Greer represent the Trump Administration. The Chinese delegation is led by Vice Premier He Lifeng, Commerce Minister Wang Wentao and the chief trade negotiator of the ministry, Li Chenggang.

In May, the two sides agreed to drastically roll back tariffs on each other’s goods for an initial 90-day period. The mood was upbeat. However, sentiment soured quickly over two main sticking points: China’s control over so-called rare earths minerals and its access to semiconductor technology originating from the US.

Experts say Beijing is unlikely to give up its strategic grip over the essential minerals, which are needed in a wide range of electronics, vehicles and defense systems.

“China’s control over rare earth supply has become a calibrated yet assertive tool for strategic influence,” Robin Xing, Morgan Stanley’s chief China economist, wrote in a Monday research note. “Its near-monopoly of the supply chain means rare earths will remain a significant bargaining chip in trade negotiations.”

Since the talks in Geneva, Trump has accused Beijing of effectively blocking the export of rare earths, announcing additional chip curbs and threatening to revoke the US visas of Chinese students. The moves have provoked backlash from China, which views Washington’s decisions as reneging on its trade promises.

What the US is willing to give up

Kevin Hassett, director of the National Economic Council, told CNBC Monday that the Trump administration may be open to loosening restrictions on some microchips that China views as critical to its manufacturing sector. The US will maintain restrictions on “very, very high-end Nvidia” chips that are capable of powering artificial intelligence systems, he added.

(The Biden administration had cut off Chinese access to most AI chips because of national security concerns, and Trump has kept those restrictions in place.)

He called rare earth a “very significant sticking point” and warned of possible disruptions to American companies like carmakers because of China’s export controls.

But China’s government officials have been irritated that the US has maintained export controls on some less-sensitive but nevertheless key exports, such as ethane gas used in refrigerants and chip technologies.

The United States has also grown impatient with China’s resistance to releasing critical rare earth materials that are crucial components in a vast array of electronics. China has licensed some rare earths on a case-by-case basis.

On Saturday, Beijing appeared to send conciliatory signals. A spokesperson for China’s Commerce Ministry, which oversees the export controls, said it had “approved a certain number of compliant applications.”

“China is willing to further enhance communication and dialogue with relevant countries regarding export controls to facilitate compliant trade,” the spokesperson said.

In April, as tit-for-tat trade tension between the two countries escalated, China imposed a new licensing regime on seven rare earth minerals and several magnets, requiring exporters to seek approvals for each shipment and submit documentation to verify the intended end use of these materials.

Following the trade truce negotiated in Geneva, the Trump administration expected China to lift restrictions on those minerals. But Beijing’s apparent slow-walking of approvals triggered deep frustration within the White House, CNN reported last month.

Rare earths are a group of 17 elements that are more abundant than gold and can be found in many countries, including the US. But they’re difficult, costly and environmentally polluting to extract and process. China controls 90% of global rare earth processing.

The American Chamber of Commerce in China said on Friday that some Chinese suppliers of American companies have received six-month export licenses. Reuters, citing two sources, also reported that suppliers of major American carmakers — including General Motors, Ford and Jeep-maker Stellantis — were granted temporary export licenses for a period of up to six months.

While China may step up the pace of license approvals to cool the diplomatic temperature, global access to Chinese rare earth minerals will likely remain more restricted than it was before April, according to a Friday research note by Leah Fahy, a China economist and other experts at Capital Economics, a London-based consultancy.

“Beijing had become more assertive in its use of export controls as tools to protect and cement its global position in strategic sectors, even before Trump hiked China tariffs this year,” the note said.

China’s economic woes

As China tackles a tariff war with the US head on, it’s clear that the disruptions are continuing to cause economic pain at home. Trade and price data released Monday painted a gloomy picture for the country’s export-reliant economy.

Its overall overseas shipments rose by just 4.8% in May, compared to the same month a year earlier, according to data released by China’s General Administration of Customs. It was a sharp slowdown from the 8.1% recorded in April, and lower than the estimate of 5.0% export growth from a Reuters poll of economists.

Its exports to the US suffered a steep decline of 34.5%. The sharp monthly fall widened from a 21% drop in April and came despite the trade truce announced on May 12 that brought American tariffs on Chinese goods down from 145% to 30%.

Still, Lü Daliang, a spokesperson for the customs department, talked up China’s economic strength, telling the state-run media Xinhua that China’s goods trade has demonstrated “resilience in the face of external challenges.”

Meanwhile, deflationary pressures continue to stalk the world’s second-largest economy, according to data released separately on Monday by the National Bureau of Statistics (NBS). In May, China’s Consumer Price Index (CPI), a benchmark for measuring inflation, dropped 0.1% compared to the same month last year.

Factory-gate deflation, measured by the Producer Price Index (PPI), worsened with a 3.3% decrease in May from a year earlier. Last month’s drop marks the sharpest year-on-year contraction in 22 months, according to NBS data.

Dong Lijuan, chief statistician at the NBS, attributed the decline in producer prices, which measures the average change in prices received by producers of goods and services, to a drop in global oil and gas prices, as well as the decrease in prices for coal and other raw materials due to low cyclical demand. The high base of last year was cited as another reason for the decline, Dong said in a statement.

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CNN’s Sam Waldenberg, Kevin Liptak, Shawn Deng, Hassan Tayir, Simone McCarthy and Fred He contributed reporting.