China is smartly and actively working their way through opaque and difficult trade talks with the US. Both countries are playing a protracted game of chess. China recently announced new export controls on a number of key rare earth metals. This move undoubtedly has far-reaching implications for U.S. industries, particularly those in the technology and defense sectors. The clock is ticking on several possible tariff suspensions. Trade experts are sounding alarms that the Chinese will withdraw and that China would suffer historic losses if these tariffs go left unaddressed.
Neo Wang, the lead China economist and China strategist at Evercore ISI, highlighted the challenging place that China currently finds itself in. He explained that this is the case because if the current tariff suspension does not become permanent, there could be serious consequences on China’s economy. Yet tensions have boiled over in recent weeks. It comes on the heels of China’s 4 April announcement to cut rare earth metal exports in retaliation against tariffs imposed by then President Trump which Trump dubbed “liberation day.”
China tightly regulates its exports, leading to fears in the United States. Rare earths have been the most important bargaining chip in every trade negotiation since. These minerals are a single point of failure for much essential advanced technology. China understands them to be a strong card to play in its negotiations with the Trump administration on tariffs.
China’s Commerce Ministry just announced the measures. In response to this smuggling, they have called on their local authorities to increase enforcement against rare earth smuggling. At the same time, this initiative highlights China’s desire to control its critical mineral resources and to control relations with the outside world. The country has granted export permits to no less than four REE magnet manufacturers. This impacts businesses, including suppliers to multinational German automaker Volkswagen, illustrating a pretty selective implementation of its export policies.
On May 12, China’s Vice Minister Li Chenggang was one of the top-level intermediaries in high-stakes negotiations in Switzerland. He characterized the continuing discussions with the U.S. as “very good.” He provided few details on any future face-to-face meetings or phone calls between President Trump and Chinese President Xi Jinping. The confusion about what will be discussed in upcoming talks is emblematic of the cloud of uncertainty that continues to hang over U.S.-China trade relations.
The irony of the matter is that this is compounded by the issue of fentanyl, a highly potent synthetic opioid. It’s turned into one of the most explosive flash points between the two countries. Wang hinted that China would be willing to address the 20% tariffs associated with the trade war by offering compromises on fentanyl enforcement. This change, still pending, would be a dramatic shift and could serve to address American concerns diplomatically. Simultaneously, it would address the domestic problems connected with drug trafficking.
Despite these efforts, some experts believe China may have underestimated the need for more forceful measures to combat fentanyl flows. Nicholas Burns, America’s former ambassador to Beijing, pointed out that China’s response to Trump’s tariffs was met with approval in Beijing, as it reinforced a narrative of resilience amid external pressure.
Misusing export control policy … ,” said a spokesperson from the Ministry of Commerce of China when responding to questions about their unfair trade practices. This statement truly highlights the depressing and intricate realities of the trade landscape, where both countries do not trust each other’s moves.
China is indeed smartly playing a long hand of cards. Other analysts are cautioning that Beijing may be misjudging the importance of rare earth minerals to the Trump administration. Dennis Wilder, a former senior White House intelligence official, voiced his alarm. He cautioned that should China overreach, the U.S. has other options from which to procure these essential materials.
The economic outlook for China has recently brightened due in part to the tariff reprieve. Consequently, several economists have increased their growth projections for the year. Both countries constantly balancing competing priorities, budgets and political winds. It’s anybody’s guess as to how these trade negotiations will unfold and what concessions will be tendered.
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