Donald Trump officially endorsed a new US-China trade deal on Wednesday. It was a surprising turn, considering that just two days of tense negotiations in London had precipitated this outcome. The Memorandum of Understanding reflects a strategic move to increase domestic production of rare earth minerals and rare earth magnets essential for the automotive supply chain. Simultaneously, it advocates to increase greater educational opportunities for Chinese students studying in the US.
As Trump says, the agreement will increase overall tariffs on Chinese products to 55%. He emphasized the importance of the agreement, stating, “Our deal with China is done, subject to final approval with president Xi and me … We are getting a total of 55% tariffs, China is getting 10%. Relationship is excellent!”
The US-China trade deal comes at a particularly fraught time for the American automotive industry. This industry has been deeply affected by major shocks due to Chinese hegemony in the rare earths market. When the US automobile industry was in dire straits, manufacturing threatened to grind to a halt, according to reports, after China limited exports of magnets essential for production of parts including windshields and doors. In April, China announced restrictions on critical minerals exports. This decision further raised tensions, as Trump first started a trade war in Europe at nearly the same time.
As part of the new deal, China will remove its down-stream rare earth export restrictions. This replacement will be effective for six months before it is rehabilitated. This concession is meant to ease supply shortages that have devastated US producers. Howard Lutnick, new US Secretary of Commerce, elaborated on the new London “framework.” It offers important, concrete information to breathe new life into the moribund Geneva pact, which had floundered largely due to China’s export curbs.
Part of the purpose of the trade deal is to increase educational cooperation. Finally, the new policy will provide for a more streamlined access for Chinese students to US colleges and universities. On this last point, Trump himself commented approvingly, promising that “full magnets, and all required rare earth elements, will be provided, up front, by China. We’re going to continue to honor our obligations to China. This starts with ensuring that Chinese students are able to come study in our colleges and universities, a process I’ve always stood in favor of!
This round of negotiations in London represents a significant turning point in US-China relations. This follows on the heels of similar agreements Trump had negotiated with other trading partners, such as Mexico and Canada—agreements which were recently called off. This new deal now awaits final approval from both Trump and Chinese President Xi Jinping.
This agreement is tremendously important for stabilizing the overall relationship between these two economic juggernauts. It’s an important first step in what would hopefully be a deeper collaboration. The trade agreement includes, in addition to tariff reductions, binding commitments from both countries to protect vital commodities.
Trump’s administration previously responded to China’s export controls by implementing export restrictions on various American goods, including semiconductor design software and aircraft. This recent cycle of tit-for-tat has brought to light the challenge of navigating cross-border trade when bilateral relations are strained.