In a surprising advance in the rapidly escalating U.S.-China trade war, China has agreed to lift its export ban on rare-earth metals. Consequently, the number of magnets flowing to the United States will increase too. This decision follows months of talks to ease historical economic strife between the two countries. China has fast-tracked the licensing process for foreign exports. This move is part of its plan to bolster its trade partnership with the U.S., which has seen up-and-down numbers in recent months.
In fact, in June, exports of Chinese rare-earth magnets to the U.S. increased more than seven fold from May. U.S. companies imported just over 353 metric tons of such magnets in 2021. Exports are booming! Given that overall trade figures between China and the United States are declining sharply, this increase is remarkable. As of July, total Chinese exports to the U.S. are down 12.6% on the year. This unprecedented decline showcases an incredibly difficult trade environment.
Despite the rise in rare-earth exports, China’s overall shipments to the U.S. have faced significant hurdles, including a 20% tariff associated with the country’s alleged involvement in the fentanyl crisis. U.S.-bound shipments have to contend with a baseline tariff of 10%. To make matters worse, specific classes of imported goods are subject to an extra 25% tariff. These tariffs have introduced a toxic element into the bilateral economic relationship, further complicating trade talks by creating an acrimonious atmosphere.
Most notably, in June, China’s worldwide rare-earth exports jumped by 60% from May to 7,742 metric tons. This astonishing growth didn’t last long as July’s numbers fell to 5,994.3 metric tons. This was a sign of danger as shipments to the U.S. continued to decline, now contracting for four consecutive months. By July, they were down by 21.7% from last year.
Lurking behind this complicated brokered agreement is a much more ominous, dangerous picture. In early 2020, China agreed to increase its annual imports of U.S. goods and services by $200 billion. This commitment was reflective of the program’s levels in 2017. Since July of this year, China’s imports from the U.S. have decreased by 10.3%. That drop happened during the January through July span. This unfortunate turn brings into serious question both the adequacy and durability of past compromises struck between the two countries.
Commerce with the U.S. has shrunk to almost nothing. At the same time, China increased its purchases from Russia to a record $10.06 billion in July. Imports from Russia overall have fallen by 7.7% from the same time last year. Yet this dropoff underscores a complex export picture driven by realigning political alliances and economic warfare.
Stephen Olson, an expert on international trade policy, commented on the current state of affairs:
“What we are seeing is in effect the monetization of U.S. trade policy in which American companies must pay the US government for permission to export. If that’s the case, we’ve entered into a new and dangerous world.”
These reflections are a lens into larger, continued worries over the impact of tariffs and overall trade policy on market access and our standing abroad.
Right now, U.S.-China tensions are coloring trade conversations. These experts all agree that former President Donald Trump views prior trade deals as unfinished business. Ian Bremmer noted that while there could be an implication of a more stable U.S.-China relationship, it does not necessarily indicate a friendlier one.
“That implies a more stable U.S.-China relationship … but by no means a friendlier one,” – Ian Bremmer.
This view reflects the prevailing perceptions around the difficulties that continue to mar negotiations for future accords.
Looking forward, there is still much uncertainty in how both countries will chart their economic course moving forward under all of this pressure. Observers speculate that Trump might leverage any renewed discussions about trade agreements to set higher purchase targets than previously established.
“It is plausible that Trump may treat the Phase One deal as unfinished business, revamping it with even higher purchase targets,” – Evans-Pritchard.
As both countries face increasing internal and external pressures, the future of U.S.-China trade relations is anyone’s guess. The fluctuating export figures and ongoing tariff structures serve as reminders of the intricate balance both nations must maintain as they pursue their respective economic interests.