Delicate trade truce with China hangs in the balance after export controls
WASHINGTON (TNND) — The tenuous pause in the trade war between the United States and China may be at risk of breaking open again after Beijing implemented new restrictions on its exports of rare earth metals and other products that provoked a threat of a return of steep tariffs to Chinese products that roiled financial markets and prompted concerns about the economy.
Officials in the U.S. and China had been cautiously optimistic over the last several months about striking a new trade deal amid President Donald Trump’s attempts to remake the American economy through massive tariffs after the two sides struck a truce in the spring to dial back massive import taxes on imports.
The turnaround started last week when China announced it would be cracking down on exports on rare earth metals and related products — a supply chain China controls a massive piece of — complicating the production of a wide range of products. Restrictions on rare earths could strangle supply chains of some of the world’s biggest companies like Nvidia and Apple that rely on them to make computer chips that are found in most consumer products.
Reducing the United States’ reliance on China for rare earths and related products has been a priority for the Trump administration that has sought deals with other countries for access to their reserves and tried to incentivize more mining and production capacity domestically. The materials are key components in the production of all kinds of tech products, medical equipment and military purposes — creating a national security and economic risk if access to them is severely curtailed.
China’s restrictions blindsided President Donald Trump and the White House, which came just weeks before he is set to meet with Chinese President Xi Jinping. The president said the rare earths restrictions could derail his upcoming meeting with Jinping but has since backed off.
“It’s difficult to see exactly what exact response China was hoping to receive, and if it’s getting that response or not,” Kellogg said. “It’s a combination of a bargaining tactic, an expression of frustration from some of the increased export controls the U.S. has placed on advanced technology chips and concerned that they may lose control over the future of processing rare earth minerals.”
He also responded to China’s crackdown on rare earths with a threat to impose new 100% tariffs on Chinese goods starting next month.
Washington and Beijing have been in a tenuous trade truce for months after quickly ratcheting up tariffs from both sides to over 100% in April. Both sides pulled back on tariff rates to allow for trade negotiations between the world’s two largest economies to happen. The new rare earths restrictions and retaliatory tariffs threaten to restart a brutal trade war with global impacts.
China responded to Trump’s threats of ramping tariffs back up with one of its own.
“Threatening to impose high tariffs at every turn is not the right way to engage with China,” a spokesperson for China’s Commerce Ministry said in a statement Sunday. “China’s position on tariff wars has been consistent: we do not want to fight, but we are not afraid to fight.”
Beijing maintained its tough stance on Monday despite Trump taking a more conciliatory approach in a Truth Social post that said, “The U.S.A. wants to help China, not hurt it!!!”
“China urges the U.S. to promptly correct its erroneous practices,” Chinese Ministry of Foreign Affairs spokesman Lin Jian said. “If the U.S. insists on going its own way, China will certainly take resolute measures to safeguard its legitimate rights and interests.”
The two sides have blamed each other for the flare-up that is threatening the trade truce and further discussions between Washington and Beijing. The U.S. has placed export controls on advanced semiconductors and adding more Chinese companies to a list that restricts exports to them.
In response, China has restricted the flows of rare earths and related products and opened antitrust investigations into American companies. China has also cut its soybean purchases from the U.S., which has put significant financial strain on American farmers.
While the new confrontations between the U.S. and China are trade-related, there are also lingering issues with national security, China’s ambitions with Taiwan and the future of artificial intelligence development lingering. Both countries are concerned about the other using their tech or materials for military purposes that can be turned against them. The U.S. has viewed trade and technology as issues that can be addressed separately, while China has interpreted them as an all-out effort to hold it back.
“It’s hard to be able to separate those national security concerns versus general trade concerns when you have a type of negotiation like this. Obviously, China doesn’t like the type of curbs that are being placed in terms of national security, so they are going to consider it part of the broader trade deal,” Kellogg said.