Advantage China in the latest US-China spat
There has been no reaction from China thus far to Trump’s announcements
[AUSTIN] The United States and China are back to blows in their trade war but China appears to have an upper hand at this time.
On Oct 10, US President Donald Trump shattered a fragile tariff truce between the world’s two largest economies when he slapped 100 per cent tariffs on Chinese goods on top of levies of about 57 per cent already in place. The provocation was China’s decision a day earlier to further restrict the export of rare earth metals, indispensable to the hi-tech economy.
Trump also said he saw “no reason” to continue with his planned summit with Chinese President Xi Jinping in South Korea at the month-end. He refrained from cancelling it outright, however, leaving open the possibility of a meeting during his month-end tour to Asia that covers Malaysia, South Korea and Japan.
There has been no reaction from China thus far to Trump’s announcements.
Reacting to Beijing’s new curbs on rare earth exports announced on Oct 9, Trump said China had taken an “extraordinarily aggressive position on trade”.
He vowed to retaliate with “large-scale export controls on virtually every product they make”, effective Nov 1, as well as on “any and all critical software”.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Experts warned that the standoff could severely damage both economies, with key US industries like automobile and defence production grinding to a virtual halt within weeks if China chooses to cut off supplies of rare earth metals.
The escalation will also have rolling repercussions for global supply chains, including those powering the booming artificial intelligence (AI) sector.
“Our relationship with China over the past six months has been a very good one, thereby making this move on trade an even more surprising one,” Trump said in a long Truth Social post that reflected his unhappiness with Beijing’s rare earth leverage.
In characteristic fashion, the US President accused China of pursuing a sinister design by cultivating a monopoly in rare earths. “I have always felt that they’ve been lying in wait, and now, as usual, I have been proven right!” he wrote.
“There is no way that China should be allowed to hold the world “captive”, but that seems to have been their plan for quite some time, starting with the “magnets” and, other elements that they have quietly amassed into somewhat of a monopoly position, a rather sinister and hostile move, to say the least,” Trump said.
China makes more than 90 per cent of the global supply of rare-earth magnets used in the manufacture of everything from cars to smart phones to fighter jets.
This dominance has undermined Trump’s ability to impose economic sanctions on China. If Beijing cuts off supplies to the US, estimates are that America’s stocks will empty in less than 90 days.
A tit-for-tat cycle appeared to be inevitable as few guard rails are left, said Paul Triolo, partner at DGA-Albright Stonebridge Group, a Washington DC-based global strategic advisory firm.
“The prospects for a face-to-face meeting or phone call between the two leaders are unlikely in the short term to defuse the volatile situation,” he said.
Significant damage is likely to be inflicted on both sides from the escalation but the US would be worse off, he said. Its auto assembly lines would shut down within weeks if Beijing decides to again cut off rare earth magnet supplies to the US.
“We are likely to see a lot more damage to companies and the two economies, as both sides take additional measures designed specifically to create pain,” he said.
“This game of chicken is not likely to end well for the US side, as Beijing is much more prepared to weather a long escalatory spiral,” he added.
Dennis Wilder, a former National Security Council (NSC) director who teaches courses on Chinese governance at The Bush School of Government and Public Service, concurred.
“We are not near the bottom. We are simply witnessing the next round in the heavyweight fight,” he said.
“The Chinese calculate that Trump wants a deal sooner than they want a deal and that he has already given a lot on Taiwan, chips,” he said, in a reference to concessions by the Trump administration in allowing the sale of advanced AI chips to China. He has also scaled back diplomatic engagement with Taiwan.
Beijing is probably calculating how much more they can get before the Oct 31 to Nov 1 Apec meeting, Wilder said.
“Trump’s threat is empty. If he didn’t want to talk, the tariffs would be immediate,” he said, pointing out that the US tariffs would kick in only on Nov 1, after the Apec summit.
The Chinese are playing harder ball, said Dr Graham Allison, a professor at Harvard’s Kennedy School of Government and the author of the 2017 bestseller, Destined For War: Can America And China Escape Thucydides’s Trap?
“In the supply chain showdown, Xi knows he has the high cards, and knows Trump knows who has the high cards, and knows that Trump knows that Xi knows,” he said, adding that this may prompt the Chinese to overplay their hand.
Wilder, the former NSC director, said both leaders had domestic imperatives to look tough, with Xi reportedly facing some political challenge to his leadership ahead of the Oct 20-23 gathering of the top officials of the Communist Party of China.
”Xi does have a power struggle in the military, where his appointees are losing. And Trump has been seen to be too accommodating to China by the hawks,” he said.
Triolo said Xi had hoped for some type of initial trade and economic agreement to counter the perception in China that he could not manage the US relationship.
“Xi has also been under pressure to remain tough in the face of new US provocations. If we descend into a major downward spiral in the relationship that Xi can spin as being driven from Washington, it will strengthen his position,” he said.
It was the US Commerce Department that precipitated the latest crisis by pushing out the so-called “affiliates rule”, he pointed out.
This rule, published in late September, applies to firms owned by companies blacklisted by the US. Such companies will now need government approval to export, import or receive US goods or technology, thus making it harder for them to get around US restrictions.
“The US move was significant, putting huge due diligence requirements on US firms and affecting likely as many as 10,000 Chinese firms,” Triolo said.
Beijing saw it as a significant breach of the spirit of agreements reached in Geneva and Madrid between the two sides, he added.
Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng, who have met nearly every month to soften the blows from the trade war, will now have more work cut out for them. STRAITS TIMES
Copyright SPH Media. All rights reserved.
