US‑China trade war escalates as rare earths become a key weapon

- Americans scored an own goal. The tariff war has turned into a trade war. It's no longer just tariffs, but also non-tariff solutions, rare earth metals, banks, flows, and services, comments Prof. Bogdan Góralczyk, a sinologist. In this way, he referred to Beijing's suspension of exporting some rare earth minerals and magnets crucial to the global automotive, aviation, and semiconductor industries, as "The New York Times" reported.

The American newspaper pointed out that without key raw materials, the production of electric motors would not be possible. These are needed for the production of electric cars, drones, missiles, and spacecraft. Half of the deposits of samarium, gadolinium, and terbium, used, among other things, in the manufacturing of fibre optics, processors, lasers, and magnets, are located in China.

Beijing's actions are the result of decisions made by Donald Trump. In February, the US president imposed a 20% tariff on Chinese goods, followed by an additional 34%. In retaliation, China imposed 54% tariffs on most American goods. Trump escalated by an extra 50%, resulting in 104% tariffs on almost all products imported from China. Beijing responded again: it raised tariffs on American goods to 84%. On Wednesday, 9th April, Trump surprised again by suspending new tariffs on almost all countries worldwide for three months, but raised tariffs on China to as much as 145%.

Shortly afterwards, Trump, however, suspended higher tariffs on smartphones, computers, and other devices and electronic components. This was done "quietly," Bloomberg reported.

"Xi Jinping is on top in the war of nerves", - commented Jakub Jakóbowski, director of the Centre for Eastern Studies.

- Donald Trump's actions indicate that his strategy is based primarily on the desire to force the opponent to negotiate, not, as recently suggested, on the global reorganisation of trade. The earlier suspension of mutual tariffs for all countries except China evidences this approach. It is China that Donald Trump perceives as the greatest adversary, which in recent decades has become an industrial powerhouse, according to Michał Stajniak, deputy director of XTB's Analysis Department.

The analyst adds that China has an advantage in the form of the rare earth metals market, which it can control to up to 90%. The world is trying to diversify supplies, but it will take years.

Many American companies are dependent on access to rare raw materials controlled by China. These include Lockheed Martin, Tesla, General Motors, Raytheon Technologies, and even Apple. Although in the case of the latter company, it is worth noting that almost all production is located outside the US. It should also be remembered that companies exporting these raw materials are waiting for licences, hence there is no official export ban, only a suspension for a shorter or longer time - explains Stajniak.

In his opinion, we should remember the COVID-19 pandemic and the world's reaction to the disruption of the supply chain after 2020.

- There was a sharp increase in the prices of some components - mainly chips, which were needed, among other things, for car production. On the other hand, the United States is the largest consumer in the world, so it is not so easy to abandon this market. Europe is, of course, a possible direction, but flooding this market with Chinese goods will certainly also lead to the imposition of tariffs by Europe - believes Stajniak.

Krzysztof Szumski, Poland's ambassador to China from 2005 to 2009, says in an interview with money.pl that "the Chinese did not start this fight and are not looking for a provocation," which is supposed to be a part of their millennial tradition. - However, they know how to take care of their interests. That's why they hit back at Trump in a painful way. Eventually, an agreement will be reached. Diplomats will sit at the table just like in Trump's first term. The difference is that the scope of actions of both administrations is more ruthless than before, he believes.

Since his return to the White House, Donald Trump's administration has been trying to pursue its interests from a position of strength. An example is the incident on 28th February in the Oval Office when Ukrainian President Volodymyr Zelensky heard that "he has no cards" in the negotiations of the so-called raw material agreement. However, some believe that Americans will not be dealing these cards in the clash with China because they must first acquire them.

- The balance of power has shifted rather in favour of China. Beijing is playing the long game, which gives them more options. But as they know, they are also heating up, though maintaining more calm outwardly. A kinetic fight, however, is not on the table, and soon, perhaps within a few months, there will be serious talks. It will probably end with slightly higher tariffs than before, but with solutions that make life easier for both sides being agreed upon. However, in politics, nothing is certain, a single incident in the South China Sea is enough - Szumski argues.

Ian Bremmer, the founder of the consulting firm Eurasia Group, which deals with global political risk analysis, offers a different perspective on the US-China clash.

The Chinese economy is performing poorly. China can afford a trade war with the United States much less than the US - the expert believes.

He adds that although the Chinese have more patience and a more stable internal policy because their leader will rule for a long time - their economy is struggling.

Chinese consumers are holding back on spending due to a lack of confidence in their government and generally low consumer sentiment. Additionally, U.S. tariffs have targeted China and extended to Southeast Asian nations that serve as major destinations for Chinese exports. As a result, China faces significant challenges, which could lead to capital flowing out of the country. The Chinese leadership will likely adopt a cautious approach when considering any further escalation in the trade conflict with the United States. Although there's potential for China to come out ahead in the long term ultimately, it will require much patience and resilience in the face of pressure from the world's leading superpower. Ian Bremmer shared this assessment during his conversation on Scott Galloway's podcast, The Prof G Pod.

However, the Chinese will not allow themselves to be pushed into a defensive position.

- Saving face in Chinese matters is fundamental. Officially, they cannot give in too much because Chairman Xi would be compromised. Therefore, changes will be made on the principle of absolute balance, also in terms of propaganda; otherwise, the Chinese will not accept it. This is the sine qua non condition (necessary condition - ed.) for any agreement. Trump already knows what he's dealing with, and I think he will be more cautious - summarises Krzysztof Szumski.