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Rare earth minerals are China’s trump card.

Trade Hardball Coming Up

The Wall Street Journal reports China’s New Trade Negotiator Is Ready to Play Hardball

In Geneva in mid-May, Vice Premier He Lifeng [pronounced “huh”] extracted a 90-day trade truce from a Trump team that had until then declined to pause a tariff blitz on China the way it had for other countries. The deal calmed the nerves of investors and markets around the world.

Now, after both sides have complained that the other wasn’t upholding the terms of the deal, that trade truce is teetering, once again jolting global investors and businesses.

At the center of the storm is He, Xi’s economic gatekeeper, who has made clear China’s strategy in this trade war is nothing like the approach it had in Trump’s first term.

During the Geneva talks, He had removed a final sticking point by agreeing to U.S. demands that China resume rare-earth exports. Yet since then He has dug in his heels, slow-walking approvals of licenses to export the minerals critical in the manufacturing of modern cars and other products.

Beijing blames the U.S. for the breakdown, saying a warning against the use of certain artificial-intelligence chips from China’s Huawei Technologies was a renewal of U.S. aggression, and complained to Washington that it undermined the trade deal. It also took offense at the U.S. plan to aggressively revoke visas for Chinese students.

Strategically, Xi feels empowered to harden his position from Trump’s first term. The arsenal of trade tools China has built under He’s leadership, including export controls of critical materials used to make chips, cars and F-35 jets, gives it the ability to cause the U.S. real pain.

China has also narrowed the technological gap with the West, racing ahead in many strategic sectors such as renewable-energy products, robotics and artificial intelligence. Such progress makes the country less vulnerable to U.S. sanctions than in the past.

Under He’s guidance, Beijing in early April took aim at the technology and high-end manufacturing sectors in the U.S., requiring export licenses for certain rare-earth magnets used in products such as semiconductors and electric cars. It wasn’t an outright ban but quickly caused the flow of such magnets to the U.S. to dry up as Chinese suppliers had to seek government approval for each overseas shipment.

Such export controls have become a powerful lever for Beijing, and the measure was among the most worrisome aspects of the trade conflict for Western automakers. During the Geneva talks, He agreed to resume allowing such exports during the 90 days but made no promise beyond that, the people said, allowing China to retain leverage over Washington in future trade negotiations.

Trade War Ironies

• Trump moans about the trade deficit with China but will not sell China the technology it is willing to buy. For example, the US has export controls on Nvdia’s advanced microchips, and export controls on AI as well.
• Second, Trump is threatening to expel Chinese students in particular, and foreign students in general, all of whom pay full price to US universities and spend additional money in the US while here.

The US has a goods deficit but a services surplus with most of the world, and Trump’s policies are hurting the services surplus.

Related Posts

On April 4, 2025, I commented China Strikes Back With 34 Percent Tariffs, Stocks Plunge Second Day

China restricts 7 more rare earths, something I have warned about many times.

China Panics

Trump says China Panicked

CHINA PLAYED IT WRONG, THEY PANICKED – THE ONE THING THEY CANNOT AFFORD TO DO!

Actually, Trump will be the one to panic if China halts all rare earth exports, not just to the US.

April 13, 2025: China Halts Rare Earth Exports Desperately Needed by the US

I have been warning about this for years. It’s now happening.

If Trump ups tariffs on China again, China will reinstate export controls on rare earths.

Also see Harvard Take Two, Who Should Be Responsible for Foreign Student Visas?

I was asked “Don’t you think there should be any checks to who we allow into the US?“

If you get the idea that no one will win this trade war, then you are thinking clearly.

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