The impact of China's export control on rare earths is rapidly becoming apparent. "The United States has two choices: either the supply chain is disrupted, or it negotiates with China. This will be painful." Amid the continuous complaints from the industry, the US government is truly in a hurry.
On May 9th, Bloomberg reported that the Trump administration is considering significantly reducing tariffs on China, and at the same time hopes that China will take similar measures and lift restrictions on rare earth exports to the US. It is worth noting that on the same day, the Office of the National Export Control Work Coordination Mechanism of China deployed a multi-department special operation, focusing on cracking down on the smuggling and export of strategic minerals.
"Requesting China to lift the export restrictions is a key objective for the United States."
According to informed sources, one of the important goals on the US's wish list is to ensure that China lifts the restrictions on the export of rare earths used for manufacturing magnets to the US. Additionally, there is the issue of fentanyl.
Meanwhile, an informed source also said that the current situation is highly volatile, which means it is still uncertain whether tariffs can be lowered in the short term.
White House spokesperson Kush Desai responded by saying: "The sole aim of the government in conducting these negotiations is to advance President Trump's 'America First' economic agenda, in order to achieve a fair and mutually beneficial trade relationship. Any discussion about the 'target' tariff rate is baseless speculation."
According to the State Council's announcement on May 9th, on that day, the National Export Control Work Coordination Mechanism Office organized departments such as the Ministry of Commerce, the Ministry of Public Security, the Ministry of State Security, the General Administration of Customs, the Supreme People's Court, the Supreme People's Procuratorate, and the State Post Bureau to hold a on-site meeting in Shenzhen, Guangdong Province to launch a special campaign against the smuggling and export of strategic minerals, and to deploy various specific tasks.
The meeting pointed out that strengthening the export control of strategic mineral resources is of great significance to national security and development interests. Since the state implemented export control on strategic minerals such as gallium, germanium, antimony, tungsten, and medium and heavy rare earths, some overseas entities have colluded with domestic lawbreakers and continuously innovated smuggling and export methods in an attempt to evade crackdowns. To prevent the illegal outflow of strategic minerals, curb the trend of smuggling, and effectively safeguard national security, while promoting compliant trade and ensuring the stability of the production and supply chain, cracking down on the smuggling of strategic mineral exports has become an urgent and important task at present.
On April 2nd, Trump brandished the tariff stick against the entire world and imposed so-called "reciprocal tariffs", with tariffs on China reaching as high as 145%.
The Chinese side immediately introduced a series of measures to precisely counterattack. Besides imposing tariffs, it also imposed export controls on 7 types of heavy rare earth-related items such as samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. In December last year, China had announced strict control over the export of gallium, germanium, antimony, super-hard materials, graphite and other related dual-use items.
CNN once published an article stating that rare earths were one of the most powerful weapons for China in this round of trade war. The current situation is that China has played this "powerful" card, while Trump has "almost no countermeasures". The report pointed out that the impact of China's rare earth export control has emerged rapidly, and the production in a series of key industries such as military, energy, and high-tech in the United States has been disrupted.
Over the past 30 years, China has consistently held a dominant position in the extraction and processing of rare earths.
According to data from the International Energy Agency, in 2023, China accounted for over 60% of the global rare earth ore production. However, its control over the processing stage accounted for 92% of the global output, and it almost had monopolistic control over the global rare earth processing sector. The United States Geological Survey also stated that from 2020 to 2023, 70% of the rare earth compounds and metals imported by the United States came from China.
All industries across the United States are complaining bitterly, and China has made its stance known.
Due to US President Trump's insistence on imposing a 145% tariff on China and targeting Chinese ships, many industry analysts in the US have warned that the freight volume at US ports will significantly decline, which will subsequently severely impact the US economy and the lives of consumers. Bloomberg mentioned that, given the warnings of rising prices and empty shelves this summer, even a significant downgrade would be unable to alleviate the pain of American consumers.
On May 8th, Trump responded to the Sino-US talks, stating that the current 145% tariff imposed on China has no room for further increase and will inevitably be reduced in the future. He said: "It can't be any higher. It's already at 145% and we know it will go down. I think we and China will have a pleasant weekend."
U.S. Commerce Secretary Lutnick said in an interview: "I believe that easing tensions and lowering interest rates to the level that is possible and appropriate is the goal of Treasury Secretary Benson. I believe this is also the goal of the Chinese representatives. The president hopes to see a good outcome, a world with eased tensions, allowing us to come back to each other and then work together to reach an important agreement."
Bessonet also said on the 7th that "consideration is being given" to exempting children's car seats, baby strollers, cradles, and other essential items for infant and toddler travel.
On April 24th, Trump and Besent had lunch with Norwegian Prime Minister Støre at the White House. Visual China
The tariff policy announced by the Trump administration has caused turmoil in global financial markets and led to a rapid escalation of tensions in Sino-US trade. Wendy Cutler, a former senior US trade negotiator and current researcher at the Policy Institute of the Asia Society in the US, said: "Even if they halve the tariffs on China, it is far beyond the levels we have seen before. This will severely restrict trade."
According to calculations by Bloomberg Economics, the tariffs imposed by the United States on the global market have raised the average U.S. tariff rate by more than 20 percentage points, reaching 23%. If the tariff rate on China is reduced to 34% as announced on April 2nd, the increase in the average tariff rate will drop to 12.6 percentage points. However, this will still be the largest tariff hike implemented by the United States since 1930. Regardless, the economic pain is likely to remain significant.
Bloomberg pointed out that, based on the current tax rates, these high tariffs would cause the US GDP to decline by 2.9% and core prices to rise by 1.7% within two to three years. If the tax rates were halved, the economic drag would be reduced by half. However, for an economy that had already contracted in the first quarter before the imposition of tariffs, it would still be overwhelmed.
Meanwhile, China is maintaining a cautious attitude towards the upcoming economic and trade talks between China and the United States that will be held in Switzerland.
On the 8th, the spokesperson of the Ministry of Commerce, He Yadong, stated that China's firm opposition to the excessive imposition of tariffs by the United States is a consistent position. If the US wants to solve the problem through negotiations, it must recognize the serious negative impacts of unilateral tariff measures on itself and the world, recognize the international economic and trade rules, fairness, justice, and the rational voices of all parties, show sincerity in negotiations, be prepared to correct the wrongdoings and cancel the unilateral tariffs, and take actions. It should work with China to move towards a common goal through equal consultation and resolve the concerns of both sides.
He Yadong pointed out that if one side insists on doing things their own way and even attempts to use negotiations as a pretext to continue with coercion and blackmail, China will not agree and will not sacrifice its principles or international fairness and justice in order to reach any agreement.
"America must take the initiative to lower tariffs on China because the trade war was initiated by it," said Song Hong, deputy director of the Economic Research Institute of the Chinese Academy of Social Sciences. If the US lowers tariffs, China is expected to take similar measures. However, he pointed out that given that the US has long regarded China as a strategic competitor, all tariffs are unlikely to be completely abolished. "China no longer entertains the illusion that the US will change its policy towards China."
Wu Xinbo, the director of the American Studies Center at Fudan University, said that through this meeting, "China will understand whether the US is serious and ready to have meaningful talks." He also stated: "The negotiations will be a long and complex process. It has just begun, so we should not be too optimistic."
Why did China choose to negotiate with the US at this time? Yu Yuantan pointed out in her latest article on the 9th that, based on fully considering global expectations, China's interests, the appeals of the US industry and consumers, China has decided to agree to engage with the US. "Negotiations do not mean giving up interests. China's interests cannot be violated. This is the basis for China's agreement to negotiate."