A week after he threatened to impose an extra 100 per cent tariff on China and to cancel a planned meeting with Xi Jinping, Donald Trump sent his trade negotiators back to the table. And progress was made in talks between US treasury secretary Scott Bessent and Chinese vice-premier He Lifeng in Malaysia. Both sides confirmed on Sunday that a framework had been reached on a way forward, ahead of the meeting between Trump and Xi this week, their first since 2019.
Enough progress may have been made to dial down tensions – at least for now – and extend a trade truce due to run out next month. The two sides had blamed one another for the latest squall to hit the talks, with Washington accusing Beijing of a “substantial, unprovoked escalation” by introducing new export curbs on rare earths. China claims that the US escalated first by expanding its list of Chinese companies subject to sanctions.
China refines 90 per cent of the world’s rare earths and it briefly paralysed some high-end manufacturing in the US and Europe when it introduced export licenses for them last April. The latest measures would go much further, requiring companies both in China and overseas to seek approval for the export of goods where the minerals account for more than 0.01 per cent of the value. As part of the latest agreement, the US expects their implementation will now be delayed.
Bessent had accused China of pointing a bazooka at the world’s supply chains and had called on allies to join the US in countering Beijing’s move. In the White House last week, Trump announced a deal with Australia to ramp up that country’s mining and refining of rare earth minerals. It could take between five and seven years to develop such alternative sources of the minerals, during which time China can continue to maintain its chokehold.
READ MORE
While a way to avoid further escalation may have been found – subject to agreement between the two leaders – Beijing has sent a message to the US, which has long restricted the export to China of technology including high-end semiconductors, that two can now play at that game. A lot is at stake and tensions are set to persist. An escalation of the trade war could see the US block the export of more technology to China or deploy its control of the dollar to cripple parts of the Chinese banking system. Beijing could retaliate by cutting off the supply of rare earths the US defence and automobile industries need to keep going.
Neither side can afford such an escalation. The emergence of an agreed framework may point to a way forward. But it remains to be seen if the truce can be signed of and, if so, whether it can last. Many of the big issues remain unresolved. This week’s meeting - and what follows - is crucial for the relationship between the world’s two biggest economies and for everyone else whose prosperity depends on them.
