Earlier this week, the trade war between the United States and China heated up. Earlier this month, China doubled down on the conflict by placing new export controls on key rare earth elements. Foreign enterprises must receive prior approval from the Chinese government before their products may be exported. This holds true, even if the products only have trace amounts of important materials. Business announcement, causing U.S. officials to quickly question the reliability of China as a future trade partner.
China still processes about 90% of the world’s rare earths and magnets. These materials are critical ingredients to produce advanced technologies including new clean automobiles, smartphones and more. The draft regulations added transparency measures, mandating that companies outline their proposed applications for products with rare earth elements. Some see this requirement, referred to by opponents as a “bailout,” as economic coercion.
U.S. Trade Representative Jamieson Greer described China’s moves as “economic coercion” and a “global supply chain power grab”. He further emphasized the gravity of the situation, stating, “The scope and the scale is just unimaginable, and it cannot be implemented.”
U.S. Treasury Secretary Scott Bessent recently warned that China is becoming increasingly unreliable as a co-pilot. This statement followed rapidly on the heels of the tightening of export controls. He remarked, “If China wants to be an unreliable partner to the world, then the world will have to decouple.” Mr. Blinken continued by declaring that the U.S. and its allies would not allow that to happen. They won’t allow new bureaucrats in Beijing to dictate the global supply chain.
This move follows a short-lived thaw in U.S.-China relations. When they first met back in May, they negotiated to lower tariffs that had been increased to the historic high of 145%! Since then, the U.S. has reduced tariffs on Chinese goods, yet China’s recent expansion of export restrictions has stoked fears of an impending trade war. The U.S. is currently considering a new round of tariffs — specifically, doubling the tariff on all imports from the U.S. from 10% to 20%.
The domestic auto industry—including U.S. car manufacturers—is rightfully terrified by supply chain interruptions. In addition, they worry that any new restrictions would result in major logjams to their business. Compounding these tensions, both nations have recently started charging new port fees on each other’s ships, deepening turmoil in their budding trade war.
China just recently instituted new restrictions on the export of lithium batteries and various forms of graphite. These materials, alongside rare earths, are crucial for the production of advanced technologies. In response, the U.S. plans to extend export controls on sensitive software. This withdrawal is a clear indication that the trade war is on, as both countries prepare for an increasing severity of tensions.