A new phase of trade negotiations between the United States and China is set to commence on Monday in London, amidst efforts from both nations to uphold a precarious truce that was arranged just last month. The negotiations were initiated following a highly anticipated phone conversation between US President Donald Trump and Chinese President Xi Jinping. This dialogue seemed to soothe rising tensions during a month fraught with turbulent exchanges, triggered by a surprising trade agreement struck in Geneva.
In May, a collaborative decision was made by both countries to significantly reduce tariffs on goods traded between them for an initial period of 90 days. Initially, this development was met with optimism and hope for a more harmonious relationship. However, discontent swiftly emerged as two critical issues arose: China’s management of rare earth minerals and access to semiconductor technology from the United States. These contentious points represent significant barriers in achieving a lasting resolution.
The situation surrounding China’s exports of rare earths and associated magnets is expected to take the spotlight at the upcoming meeting in London. Despite the strategic importance of these minerals — which are integral components in various electronics, vehicles, and defense systems — experts suggest that Beijing is unlikely to relinquish its tightly held control over this crucial sector. Morgan Stanley’s Chief China Economist, Robin Xing, articulated in a research note that China’s dominance over the rare earth supply chain grants it considerable leverage in trade negotiations, asserting that it remains a critical bargaining chip.
Since the Geneva discussions, President Trump has accused China of obstructing rare earth exports, additionally announcing limitations on chip exports and contemplating revoking the visas of Chinese students studying in the United States. Consequently, China has reacted defensively, perceiving these allegations and actions as Washington’s failure to uphold its end of the trade agreements.
The London meeting will place significant figures in the spotlight, with US Treasury Secretary Scott Bessent, Commerce Secretary Howard Lutnick, and Trade Representative Jamieson Greer slated to engage with a Chinese team led by Vice Premier He Lifeng. Observers are keen to see if consensus can be achieved regarding these pivotal issues.
On Saturday, China signaled a willingness to engage constructively, as a spokesperson from the Commerce Ministry indicated that approvals had been granted for a regulated number of applications. This suggests a potential thawing in relations, with China’s intent to facilitate compliant trade gained through enhanced communication about export controls.
Kevin Hassett, head of the National Economic Council, noted on CBS’s “Face the Nation” that the US aims to restore the flow of rare earth minerals and expressed optimism regarding a possible trade agreement following the talks. He indicated satisfaction with the rate of released exports, though it fell short of previous expectations established in Geneva.
The contentious topic of rare earths is not new; back in April, as trade tensions boiled over, China implemented a licensing system on seven rare earth minerals, necessitating exporters to seek approval for each shipment and validate end-use documentation. Following the Geneva truce, the Trump administration expected China to relax these restrictions, but the slow pace of approvals has led to frustration among US officials.
Rare earths encompass a collection of 17 elements that, while abundant globally, pose extraction challenges due to the complexities of their processing. Despite the presence of these resources in other nations, China retains a staggering 90% of global processing capacity, solidifying its strategic importance.
Experts speculate that China may leverage its control over rare earths to negotiate reduced US export restrictions targeting advanced semiconductor technologies that are crucial for its own advancements. Recent reports indicated that some Chinese suppliers associated with American firms have begun receiving temporary export licenses, signaling a potential easing in the rigid trade conditions previously imposed.
However, predictions show that while China could expedite license approvals to alleviate diplomatic tensions, access to critical rare earth minerals may remain more constrained than it was prior to April. Observers at Capital Economics have warned that Beijing’s assertiveness in utilizing export controls as a means to bolster its global stature could signify a trend that predates the tariffs imposed by the Trump administration.
As China confronts a trade war with the US, economic pain is evident within the country. New trade data released indicates a mere 4.8% increase in overall exports in May compared to the previous year’s same month, a stark decline from the 8.1% surge recorded in April. Exports to the US saw an alarming 34.5% drop, intensifying concerns in light of the trade truce established mid-May.
Despite these bleak figures, Chinese officials have asserted the resilience of its economy, suggesting a strong capacity to endure external pressures. Concurrently, inflationary trends persist as evidenced by the National Bureau of Statistics, with a 0.1% dip in the Consumer Price Index and a notable 3.3% decrease in the Producer Price Index, marking the steepest decline in over two years. Analysts attribute these trends to fluctuating oil prices and decreased demand for raw materials, underscoring the ongoing challenges facing China’s economic landscape.