US President Donald J Trump happily announced a reduction in tariffs on Chinese products in exchange for relaxation on critical minerals (rare earths) by China during a long-awaited meeting with Chinese President Xi Jinping in South Korea.
The disturbance in international trade owing to tariff turmoil has had a negative impact on the world economic outlook. The new controls on rare earth materials could prove detrimental, even fatal, for the smooth functioning of supply chain mechanisms regulating international trade and commerce. The course correction achieved in the recent breakthrough meeting between President Donald Trump and President Xi Jinping may pave the way to achieving a rare balance in world affairs.
After a long battle over tariff wars, President Trump struck a deal with President Xi Jinping, relaxing tariffs in exchange for concessions on rare earths. The Chinese export controls on rare earth critical minerals have created ripples in world affairs. In fact, this was in response to the US’s tariff policy, which disturbed the free flow of international trade and caused tremors in the global supply chain, supposedly regulated under WTO rules.
The US tariffs created a firewall, damaging world trade. In a quid pro quo, China successfully launched its rare earth ‘missiles’, accurately hitting US tariffs and trade barriers. Apparently, the US has lost the battle of tariffs against China as a tool to influence trade and commerce.
There is no doubt that all strategic arms programmes – from missile technology to nuclear systems – are connected or interlinked with modern technologies dependent on rare earth materials. The entire world and its businesses are undergoing rapid transformations owing to technological advancement.
This was one of the main reasons behind the US Congress passing legislation to block or unblock chip technology, which was broadly aimed at halting China’s rapid progress in the field of semiconductors. The CHIPS Acts passed by the US Congress and the EU Parliament in recent years were meant to pour investment into this technology to safeguard their interests and maintain global superiority. However, China’s near 90 per cent monopoly over the processing and refining of rare earth minerals has created an entirely new situation for the US and the EU.
The US has been imposing new tariffs and taxes on Chinese products, particularly cost-effective EVs from China, to protect its own industry. The ever-increasing US tariffs against China have prompted a new cold war, with rare earth materials being used as a tool to create balance in the unbalanced terms of international trade. It is interesting to note that the US, once a strong proponent of free trade through the WTO, has now started erecting new tariff barriers against low-cost Chinese EVs and other products.
The justification given is to maintain its perceived superiority, allegedly accusing the Chinese government of using dumping as a tool to subsidise its products. The trade war with China has reached such a scale that the G7 countries – as strategic partners of the US – are currently deliberating on decisions regarding rare earth critical minerals to take up the issue with China.
A new class of technology elites is emerging to monopolise world trade and business. Chips and semiconductors are the linchpin of these new technologies. Batteries have gained pivotal importance in running the machines that transform the world. Chip-empowered AI applications have achieved the status of ‘king’ in the technological realm. Advanced countries – especially the US, Russia, China and the EU – are racing to outpace their competitors by monopolising chip and semiconductor technologies. There is no doubt that tech elites will rule the world in the future. However, all such technologies depend on rare earth critical minerals and materials for their success, from fighter jets to submarines.
President Trump seeks to shore up reserves of rare earths to counter China’s monopoly. But it will take time to reset the course. Looking at the chessboard of global economic politics, China aims to counter US tariff weapons with its own strategy of tech controls by weaponising rare earth minerals, thereby affecting global supply chains. The world is watching anxiously to see how far China is willing to go in reshaping global trade.
Rare earth metals have become the new rules of the game. This is precisely what has compelled the US administration to come to terms with China to remain relevant in the new global scenario. A one-year relaxation in Chinese export controls on rare earth materials means a great deal for the US, allowing it to develop its own stockpiles through new cooperation agreements with Australia and other countries. Under these agreements, such rare materials will be provided to the US to construct and develop its own processing and refining facilities, enhancing its capacity to counter China’s monopoly.
The new situation is both remarkable and inspiring, with President Trump and President Xi Jinping reaching a new deal on rare earth materials – opening trade corridors for Chinese products in return for China importing soybeans from US farmers who had been among the worst hit due to import restrictions imposed by the Chinese government in response to the unprecedentedly high tariffs introduced by President Trump.
The US president agreed to reduce tariffs on China to 47 per cent in exchange for Beijing resuming soybean imports from the US, relaxing rare earth export controls, and cracking down on the illicit trade of fentanyl. After meeting his Chinese counterpart, President Trump termed it a “historic, amazing meeting” that settled economic and trade issues with China. A new balance in world affairs could emerge from this competition, with China having a bright future in advancing multilateralism in international economics.
The ‘Liberation Day’ tariffs announced by President Trump in April this year produced nothing but chaos in international trade, disrupting the global supply chain mechanism regulated by the World Trade Organization. The tariff onslaught against Chinese products ended with a trade truce in South Korea. However, the trade deal with the world’s second-largest economy has paved the way to restoring a smooth global supply chain. Balance in international trade and commerce may now be achieved through a new world order. Interestingly, China has become the new champion of free trade under WTO rules, while the US appears to have reversed its stance.
The global economic outlook may soon take a new turn. President Xi Jinping may implicitly or explicitly gain concessions to scale back support for Taiwan while reducing patrols in the South China Sea. There may also be an understanding regarding the Ukraine war, potentially leading to a resolution through Chinese diplomacy.
The world has started to actualise the dream of multilateralism in global politics. World affairs may achieve balance through new trade deals on tariffs and rare earth materials. This new equilibrium is essential to restoring the smooth flow of international trade and global supply chains. Rare earth critical minerals have proven crucial in achieving a rare balance in world affairs governed by international trade and commerce. New trade avenues are already in the pipeline to connect the world at large.
The writer is a former additional secretary and can be reached at:
hassanbaig2009gmail.com