Donald Trump sparked further tension with China by threatening 200% tariffs last week. This move was made with the aim of ensuring China’s provision of rare earth magnets to the United States. But what was truly revealed in this situation was America’s critical dependence on China’s trade, which is alarming, considering the national security implications for America. Trump’s insistence on ‘obtaining magnets’ from China, or else imposing a heavy tariff of 200% was troublesome. Not only did it signal a potential trade embargo between the countries, but it also highlighted a dangerous power play.
Trump suggested shutting down trade with China would be totally fine, which reveals a concerning short-sightedness. Playing a ‘who blinks first’ game with China over these rare earth magnets indicates how these commodities have become central in the international political scene. These magnets hold significant industrial and technological importance for America, so the Trump administration’s handling of the situation was risky at best.
Bargaining with China, a dominant world player, shows how cornered Trump was, even though he claimed to hold ‘incredible cards’. Strangely, he seems to be unaware of the possible destruction in China that these cards could cause, once again shining a light on his poor handling of foreign relationships. China’s GDP depends on US exports for only about 2.9%, which makes Trump’s threat less impactful than he might think.
Of course, Trump had other options, such as denying China access to Boeing jet engines and components, given China’s heavy reliance on Boeing and Airbus from Europe. But that requires strategic thinking and finesse, not Trump’s strong suit apparently. The reality is that he could have also controlled China’s access to the most sophisticated US semiconductors, but that approach was neglected.
Hardly surprising, when Trump imposed new tariffs on China earlier, China was quick to respond – both with tariff increases of its own and by putting a full stop on exporting rare earths and their magnetic counterparts to the US. Trade relationships aren’t a one-way street, something the Trump administration started realizing too late.
Hints of a possible truce come with a reduction in tariff rates, 30% by the US and 10% by China. With this truce, China has seemingly permitted the exports of rare earth magnets to continue. But the question remains, can China be trusted in such deals, or are these actions only strengthening their leverage over the US?
When China restrained the supply of these magnets earlier in the year, it nearly brought the US automotive industry to its knees. With no meaningful alternatives in hand, and a potential 15-year, $120 billion investment to extricate the US’s supply chain from China’s grasp necessary, America is running against time and money and seems to be on the losing end.
China is hardly disturbed by the possibility of excessive tariffs, revealing an ease unaffected by the Trump administration’s threats. Since the first deployment of tariffs by Trump, China has intentionally expanded its trading partners and reduced its dependency on America for critical imports, undermining Trump’s planned tactics.
Owing to China’s control over the rare earths market, they can modulate their export quotas on a whim, threatening to halt America’s advanced manufacturing base. Trump downplayed China’s market control, another blunder that might prove costly given the size and importance of this market.
Interestingly, both Trump’s administration and the Biden administration following it, took steps to restrict China’s access to America’s top-level semiconductors. In a rare moment of unity between administrations, they recognized, albeit late, the importance of these chips in the development of cutting-edge artificial intelligence technologies.
However, for now, both governments seem to be choosing to maintain the existing trade relationships, keeping potential hostile acts aside and controlling the trade of strategic products rather than initiating the worldwide destruction that an outright trade war would invite.
So, we see an international trade choreography unfolding, directed by the dynamic interplay of power and resource control, showcasing an interesting example of political diplomacy and murky power tactics both from the Trump administration and now, under Biden.
In conclusion, while Trump’s tactics were questionable, Biden’s continued use of restricted access tactics reveals the complexities of managing key trade relationships, making clear just how politically crucial the control of rare earth resources, for better or worse, has become in the US-China relations.
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