Introduction to US-China Trade Talks
Financial markets started the week rejoicing over weekend headlines that trade talks between the United States and China were proceeding smoothly. Just weeks earlier, Trump threatened to impose a 100 percent tariff on Chinese exports and announced he would cancel a meeting with Chinese President Xi Jinping. Now that meeting is scheduled to take place this week.
Rare Earth Minerals and Trade Escalation
The latest escalation between Trump and Xi came after Beijing announced plans to restrict exports of rare earth minerals, critical materials needed to power a wide range of electronic devices. But this is hardly new – China, which controls most of the world’s supply of rare earth metals, began taking measures to restrict foreign access to them more than 30 years ago. And as demand for China’s rare earths has increased since then, so have the safeguards that allow other countries to buy them.
Expectations from the Meeting
After meeting with Chinese trade negotiators in Malaysia over the weekend, U.S. Treasury Secretary Scott Bessent said he expected the high-risk meeting between Trump and Xi could lead to "some sort of shift" in rare earths export controls. U.S. Trade Representative Jamieson Greer, who led China’s trade talks with Bessent, said the Treasury secretary told Chinese negotiators at their last meeting: "This is the last time we want to talk about rare earths." However, Greer expressed skepticism about the progress, stating that this isn’t the last time they want to talk about it.
Potential Outcomes and Challenges
He’s right. “Some kind of reprieve” simply means that Xi will still be able to use access to rare earths as leverage against the United States whenever he is alarmed by Trump’s actions. And when Beijing inevitably announces new, tightened export controls on rare earths, Trump will likely respond with the threat of higher tariffs. But there is no guarantee that Trump or Xi will build on the work of their envoys. Trump has repeatedly caused unrest recently and undermined the diplomatic victories that Bessent and Greer achieved with China.
Investigations and Violations
Just last week, Greer launched an investigation into whether China is abiding by the terms of a trade deal Trump negotiated during his first term. Under this agreement, China committed to increasing purchases of American products by $200 billion by the end of 2021. However, this level remained well below this level. The more optimistic assessment, however, is that a groundbreaking deal on rare earths or something similar could be reached at a meeting between Trump and Xi this week. But it’s still difficult to take any progress between Trump and Xi too seriously, given that both sides have accused the other of violating previous agreements.
Tensions with Canada
As Trump sought to lower the temperature with China, a longtime rival, he raised it with one of America’s biggest allies and neighbors, Canada. In response to an ad commissioned by Ontario that included portions of a 1987 anti-tariff speech by former President Ronald Reagan, Trump threatened to raise tariffs against Canada, America’s second-largest trading partner, by another 10%. Canadian Prime Minister Mark Carney has been hesitant to retaliate against the tariffs Trump imposed on his country, but that doesn’t mean he won’t. After Trump suspended trade talks over the tariff bill, Carney told reporters Monday: "It’s not worth being upset. Emotions don’t go far."
Conclusion and Potential Consequences
Either way, if Trump continues to antagonize his allies, he risks making the American economy even more dependent on China. The ongoing trade talks and tensions between the US, China, and other countries like Canada will have significant implications for the global economy and trade relationships.
