Welcome to the 264th edition of Trade War.
US-China trade negotiations in London end on positive note. Trump says Washington will now get “necessary rare earths” and declares the bilateral relationship “excellent.” And Commerce Secretary Howard Lutnick suggests US ready to lift technology export restrictions in exchange for Chinese magnets, in a startling quid pro quo.
China is better positioned than the US for future trade wars, says Rand report. And Chinese exports to the US plunge 35%, the steepest drop in more than five years.
Deflation deepens amidst prices wars and trade tensions. China struggles with the challenge of cleaning up loss-making firms while avoiding mass unemployment. And Hong Kong shuts down labor protest monitoring organization founded by former Tiananmen activist Han Dongfang.
Notable/In depth ~
New Atlantic Council interactive tool measures G7 reliance on China
Hard drives flown outside China to skirt advanced chip restrictions
Huawei’s Ren Zhengfei talks of the importance of basic research
London ‘deal’ or ‘framework’ - what was accomplished?
Where are we now after the U.S. and China trade and tariff meeting finished Tuesday in London?
—First, here’s how each side has described the outcome -
Writing on Truth Social on Wednesday, Trump said that a “deal” had been reached with China and that the “relationship is excellent.”
Beijing for its part, wasn’t quite as bullish, with China’s trade negotiator Li Chenggang saying only a “framework” had been agreed to “in principle.”
What was actually achieved in London?
—Tariffs have been reduced, with the U.S. now imposing a 55 percent levy on products from China, and with China putting 10 percent on American products. That’s good because lower tariffs are better than really, really high tariffs.
But 55 percent is still pretty stratospheric. That means American consumers are still going to have to pay a lot more more for goods from China. Depending on who “eats” the tariffs, they may even end up paying a 55 percent tax.
And one can easily argue that the tariffs in the first place were a self-inflicted wound by the White House, so reducing them isn’t much to crow about.
—Rare earths progress. Again quoting Trump, the U.S. will get “full magnets” and “necessary rare earths.”
That’s good. But keep in mind that not too long ago, just before the Trump administration, the U.S. was already getting most of the rare earths it needed from China.
So what’s different now after the last few months?
—China is even more aware that it has a tremendously powerful weapon at hand with its dominance of rare earths production and processing. And as I have said repeatedly in recent days, promises or not, China is absolutely not going to give us its most effective tool of economic coercion.
No doubt the U.S. will get easier access to rare earths for a time, but that won’t last. Next time the relationship goes south, Beijing will once again slow the export of rare earths to a trickle, or even shut it off altogether.
—Lifting some U.S. technology restrictions: Meanwhile, it looks like the U.S. will be lifting some of the restrictions on tech exports to China, as a quid pro quo for more rare earths.
That’s a major win for Beijing. But what the U.S. got out of London isn’t clear.
“This is completely new territory”
“Let that sink in for a minute. Lifting tech restrictions. This is completely new territory,” I say in the Thursday live video.
“Back during the Biden administration, every time we turned around, it seemed like there were new tech restrictions. The so-called small yard, high fence. The yard kept getting bigger and the fence kept getting higher. That was used to describe the semiconductor sector.”
“If, as we expect, the Trump administration for a quid pro quo starts releasing, or loosening some of those tech restrictions on China, that is a major win for China, a big deal. China is very happy about that I'm quite certain. So good news for Beijing, but I'm actually struggling to see what the U.S. got out of this.”
Watch a clip of the live video below.
“We just worked very positively into the night” says Lutnick
“It was very positive. And we just worked very positively into the night to get this deal done.
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