Trump once talked tough with China. Now he’s playing nice.

Trump balked and ordered his Pentagon deputy to rewrite it, according to three officials familiar with the exchange. When the administration’s revised National Defense Strategy published in January, it offered instead a conciliatory tone toward Beijing.

“President Trump seeks a stable peace, fair trade, and respectful relations with China,” an unclassified version of the document declares.

While every administration crafts its own defense strategy, Trump’s second is making the unusual move of discarding a policy that was formulated by his first. That bipartisan approach sanctioned by Trump 1.0 characterized China as the most consequential U.S. adversary.

The Trump 2.0 framework is instead a seismic shift in U.S. policy, trade practices and rhetoric toward Beijing driven by a new mantra: Don’t rock the boat.

Since Trump met with Chinese leader Xi Jinping in the South Korean city of Busan in October, the administration has paused hefty tariffs planned on Beijing’s most prized industries; abandoned plans to penalize Chinese companies determined to be security risks to the U.S.; curbed investigations into Beijing-linked hackers; waved through Chinese investment in the U.S. with little scrutiny; and told officials to tone down their comments on China, current and former U.S. officials familiar with the changes said.

Pursuing activities antagonistic to the rival superpower has become further paralyzed by Commerce Secretary Howard Lutnick ordering staff that they need his signoff for any China-related actions, people familiar with the matter said. As a result, even senior Commerce officials at times sit by his office waiting or outside the building, watching for his car. Officials at other agencies pursued a ban on a China-linked router maker by styling it as an order that doesn’t name the company or China.

Trump himself didn’t even directly namecheck the economic and military rival in his February State of the Union address.

The dramatic reversals, which have alarmed some of Trump’s own national security aides, are in part aimed at laying the groundwork for Trump’s May meeting with Xi, according to current and former U.S. officials. Many China hawks in the administration have taken to gallows humor, calling the shift the ‘Busan Freeze,’ named for the South Korea meeting between the leaders that produced a fragile trade detente.

Trump’s advisers had initially prepared for a second term full of tough actions on China, recalling a first-term president who had declared Beijing “antithetical to U.S. values and interests,” kicked some Chinese companies out of the U.S. and oversaw aggressive intelligence operations against the country. The second term did begin with tariffs on China that briefly reached nearly 150%.

Then, in response, Beijing invoked a nuclear option it hadn’t dared to in the first term: Last April it shut down most exports of rare earths, mineral deposits essential for high-tech applications, threatening U.S. production of everything from electric vehicles to missiles, jet fighters, data centers and submarines. China mostly controls the refining, separation and global export of rare earths. Beijing’s willingness to sever such a critical trade tie caught Trump’s team off guard, according to administration officials.

Treasury Secretary Scott Bessent and others appealed to Trump to walk back the tariffs and dial down the trade war, to get the minerals flowing again, according to officials familiar with the matter.

Against a president who prides himself on his dealmaking, China often appears to be prevailing.

China “stood up to President Trump with the rare earths, and the U.S. backed down,” said Anja Manual, a former State Department official working on Asia policy in the George W. Bush administration who now advises companies on geopolitics. “It is really mutual damage control now.”

The war with Iran has further weakened the U.S. negotiating position with Beijing, national security officials say, with Trump deciding amid the sprawling conflict to delay his first of what was to be four meetings with Xi this year. The postponement of the April meeting gives Trump’s aides and cabinet secretaries, who were behind in preparations, more time but also diminishes expectations for additional meetings or substantive concessions from Beijing, said people familiar with the plans.

This week, China even helped broker a cease-fire after a month of fighting between the U.S. and Iran.

Some of the deliverables the U.S. is seeking underscore just how much officials have reset any expectations that the U.S. could force changes to the Chinese economy. Among the expected requests: large quantities of purchases by China, specifically for orders of soybeans, Boeing aircraft and American energy exports to slash the persistent bilateral trade deficit, The Wall Street Journal has reported.

The requests would largely reset the trade relationship to the status quo from 2024, without significant U.S. gains. These were drummed up before Trump irritated Beijing by rescheduling.

Some China watchers have described the Trump administration’s increasingly dovish posture as a tactical truce, rather than a strategic shift, saying that the two nations could return to robust economic competition. Even so, the changes have permeated Washington in ways that may be difficult to reverse.

“Our lead over China will atrophy,” said Chris McGuire, who served as a National Security Council official in the Biden administration and at the State Department under Trump through August. “The long-term cost of that is going to be astronomical.”

Trump himself has taken a more sanguine approach to the reversals.

In February, he told a Journal reporter: “We have a very good relationship with President Xi.” Shortly after, the president postponed an arms sale to Taiwan that senior lawmakers had already approved.

White House spokeswoman Karoline Leavitt said Trump and Xi have agreed they are both looking forward to the president’s trip to Beijing, and China has already resumed some purchases of soybeans, thanks to Trump’s trade negotiations.

A spokesman for the Chinese embassy in Washington, Liu Pengyu, said in a statement: “The trajectory of China-U.S. relations has once again demonstrated that cooperation benefits both sides, while confrontation harms both.”

China hawks sidelined

The seeds of the reversal appeared early last year.

At Trump’s request, national security advisers from his first term started strategizing days before Christmas in 2024 about new investment policies. The advisers brainstormed an approach that would take a harder line on China’s encroachment on American technology.

Over the holiday, David Feith, who was set to take the role of senior director for technology and national security on the National Security Council, began work with colleagues on a directive that would more aggressively block Chinese investments, rather than accommodate deals with restrictions, and curb China’s access to American tech talent.

One month after taking office, Trump unveiled the America First Investment Policy.

But the president later decided he didn’t want to pursue many of the restrictions, and the directive was quickly forgotten, people familiar with the events said. Last April, Trump fired Feith along with other advisers who were viewed as China hawks. The council’s tech and national security directorate, which had been the nerve center for coordinating administration actions on tech and China, was dismantled.

The removal of national security officials who supported tough export controls on American chips opened the way for Nvidia to sell its chips to China, which Washington had previously restricted to avoid helping further China’s AI industry.

Now, the Committee on Foreign Investment in the U.S., the panel that was set to be beefed up under the America First order, has instead slowed its enforcement efforts so significantly that some lawyers are advising clients to proceed with deals because the chances are so small that Cfius will intervene, people familiar with the matter said.

A Treasury spokesman said that under Bessent’s leadership, “nothing has changed in regards to Cfius diligence, investigation, or enforcement.”

China ups the ante

In early October, weeks before Trump’s Busan meeting with Xi, China upped the ante with additional restrictions on rare-earths and semiconductors. Bessent and trade official Jamieson Greer prepared a range of actions for the U.S. to respond to China’s violations. These included restrictions on chemicals, commercial aerospace and aviation technologies. But Trump told them no—he wanted his meeting in Busan to go smoothly, according to officials familiar with the exchange.

“China’s offensive strategy allows them to control the supply chain,” said Tomasz Nadrowski, a longtime investor in critical minerals and author of a recent book on China’s sector dominance.

Some Chinese officials have largely concluded that Trump’s aides are responsible for rushing through export controls without the president’s signoff, officials familiar with the matter said.

The trade truce does provide breathing room from Beijing’s crippling export controls so Trump can focus on reducing U.S. supply-chain risks and tech entanglements with China, said Craig Singleton at the Foundation for Defense of Democracies, which advocates for an aggressive stance on competition with China.

After the Busan meeting, Trump tapped his confidant Stephen Miller to coordinate China-related actions proposed from different parts of the government, people familiar with the matter said. He consults with Bessent and Greer, the lead negotiators with Beijing. They wanted to tightly manage policy processes to ensure no one from the administration made any moves that could anger Beijing, the people said.

The White House, for example, cautioned Republican leadership of the Senate Committee on Banking, Housing and Urban Affairs to tone down their rhetoric after legislation that blocked certain U.S. investment in China was titled, “FIGHT China Act,” according to people familiar with the matter. The legislation passed in December with a more benign title that didn’t single out China.

In another instance, the White House told the Cybersecurity and Infrastructure Security Agency to not explicitly mention China in its threat bulletins that inform the private sector about new, high-risk hacker campaigns, according to a U.S. official familiar with the matter. China-linked hacks have often been the focus of these bulletins.

The resulting paralysis of decision-making has contributed to large-scale departures of staff working on China matters in multiple Commerce Department offices.

One such office had already determined that China-founded router company TP-Link and China-linked internet-connected trucks and buses pose national security risks. Officials thought vulnerabilities in their software could provide China access to spy on U.S. communications or access sensitive infrastructure.

Interagency reviews had reached a similar conclusion about the risk of TP-Link and supported a ban. Staff had set in motion new rule-making to restrict U.S. sales of those products before they were put on hold and office leadership dismissed, according to officials familiar with the process.

Commerce leadership, meanwhile, is emphasizing that office’s focus on threats from Russia and Iran, a person familiar with the matter said. The countries are part of the office’s remit but supply little technology to the U.S.

Supporters of a ban on TP-Link in March eked out a victory. The Federal Communications Commission announced a ban on new imports of all foreign-made routers, “regardless of the nationality of the producer,” a blanket prohibition that also accomplishes sidelining Chinese routers without naming the country or TP-Link. The new rule was designed in part to minimize disruptions to Trump’s relationship with Xi, people familiar with the matter said.

TP-Link Systems, which in 2024 moved its headquarters to California, says it is an American company and its devices are secure. Jeffrey Chao, founder and chief executive who lives in California, said the FCC requirement applies equally to all manufacturers and TP-Link plans to start making routers in the US.

In December, Miller and others decided to punt on tariffs for legacy semiconductors, critical minerals and other products from China, according to people familiar with the decision. The Commerce Department has no fewer than eight open investigations that could result in tariffs on sectors from critical minerals to industrial robots where it has either delayed a decision or hasn’t taken any action. A White House official said the administration is taking a nuanced approach to reshoring industries critical to national and economic security.

Now, China is considering a reciprocal reopening of the Houston and Chengdu consulates, the Journal has reported, which first-term Trump officials closed down saying the diplomatic mission was engaged in economic espionage and visa fraud.

Rep. Ro Khanna, a Democrat from Silicon Valley who is the ranking member of a House panel Republicans set up in 2023 to support an aggressive posture toward Beijing, said Trump appeared to prefer insulting Canada and Europe while welcoming Chinese investment into the U.S. “It is a very odd position to have,” Khanna said.

The softer approach to China hasn’t been uniform across the administration. The Central Intelligence Agency in recent months published unusually bold videos in Mandarin openly recruiting Chinese spies from the ranks of the country’s military. The FCC in December banned equipment from popular Chinese drone companies DJI and Autel.

The conflicted approach has also led to some confusion. In February, the Pentagon added Chinese technology heavyweights including Alibaba to a blacklist of Chinese military contractors, and immediately retracted it. It hasn’t yet been rereleased. A Defense Department spokesman said the department took the list down because it may require updates, and would publish a new list after making changes.

In a speech this year in Detroit, Trump called China “great” and said he welcomed its factories in the U.S. as a means to create jobs while circumventing his tariffs on foreign autos.

“Let China come in,” the president said.

Write to Heather Somerville at heather.somerville@wsj.com, Alexander Ward at alex.ward@wsj.com and Gavin Bade at gavin.bade@wsj.com