High-level negotiations between the United States and China concluded in London recently, announcing a preliminary agreement to reinstate the pause in the ongoing trade war. These discussions lasted for two, intensive days and ended without the disclosure of further details. The US delegation, led by the Treasury Secretary Scott Bessent and including Commerce Secretary Howard Lutnick and Trade Representative Jamieson Greer, is on their way back to Washington to present the agreement to President Trump.
China’s Deputy Minister of Commerce, Li Chenggang, characterized the dialogue as ‘rational, in-depth, and honest’. He pointed out that both nations had agreed to adhere to the consensus reached at their previous meeting in Geneva. Still, the extension of the talks into the second day implies that there were significant aspects of the negotiations to contend with.
These trade dialogues in London were set up following a ninety-minute phone call between President Trump and his Chinese counterpart, President Xi Jinping. Washington initiated this call, sensing that the ‘ceasefire’ agreed upon in Geneva was on the verge of crumbling as both nations blamed each other for not respecting the terms of the accord.
US allegations against China involved the sluggish distribution of rare earth minerals, while China retorted with accusations about the imposition of further restrictions on high-tech imports and threats to the education opportunities of Chinese students in the US. Kevin Hassett, the head of the White House’s National Economic Council, hinted before the talks that the negotiations will revolve around the issue of US restrictions on high-tech supplies to China and the provision of rare earth minerals.
During an interview with CNBC, Hassett stated that after their agreement is firmed up, ‘export controls from the US will be eased and the rare earths will be released in volume.’ However, he emphasized that he wasn’t referring to the highest-end tech products from Nvidia, a leading global manufacturer of advanced chips used in artificial intelligence development.
Hassett suggested the potential for a relaxation in controls on less advanced semi-conductors, deemed ‘very important’ to China. While the discussions were underway, there was virtually no public disclosure about the specifics of their content. Bessant and Lutnick only made limited comments.
Lutnick expressed optimism at the beginning of the second day of discussions, stating they were progressing well. Upon their conclusion, Bessant went back to Washington to testify before Congress and confirmed to reporters that the talks could be described as productive. Communication will continue between Greer, Lutnick, and their Chinese counterparts ‘as needed.’
It seems the core negotiation point revolved around the ban-lift on US semiconductors in exchange for an expanded supply of rare earth minerals from China. Any U.S. concession here, once the framework is revealed, would signal a hit to U.S. interests, given its primary goal to thwart China’s technological advancements due to concerns over maintaining of U.S. global hegemony.
Dexter Roberts, from the Atlantic Council’s Global China Hub, told Bloomberg that any roll-back on technology control would be seen as a victory for China. The possibility of loosening ‘any controls’ was considered unimaginable until recently. Despite damaging China, the U.S. measures haven’t managed to halt the nation’s technological progress.
As noted in a recent New York Times article, the U.S. has implemented various strategies in its attempt to outpace China in the technology race, spanning areas such as AI and autonomous vehicles. However, these efforts have yet to yield significant results. Jensen Huang, CEO of Nvidia which is under U.S. sanctions, questioned the efficacy of the bans, claiming during an earnings call that preventing Chinese competitors from U.S. competitors, fortifies them overseas and weakens U.S.’s standing.
Should China secure concessions, it would certainly be attributed to its dominant position in the critical minerals market. Fears are growing in certain sectors of the U.S. industry, most notably auto manufacturing, that a disruption in supply could lead to significant slowdowns or even complete stops in production.
China nearly monopolizes the refinement and manufacturing of the essential rare earth minerals used in producing high-temperature resistant magnets. Car manufacturers have warned that these crucial components – used in electric motors that control brakes, steering, and fuel injectors – could be depleted within days or weeks.
Rare earth minerals are also vital in the production of semiconductors. The challenge is not locating the minerals but extracting and refining them, a process often involving more than 100 stages that use potent acids. China has a refined approach to rare earth minerals, thus refining more than 99 percent of rarer, heavy types, and has even introduced related academic programs at near 40 universities nationwide.
Another minor but essential rare earth, Samarium, is employed almost solely for military use. It’s utilized in the production of heat-resistant magnets, significant in diverse military applications. Samarium withstands the kind of heat that would melt lead, without losing magnetic force, making them crucial for advanced military machinery.
Samarium forms a core constituent of every F-35 fighter jet, with a reported consumption of about 50 pounds of samarium magnets per plane by Lockheed Martin, a major American aerospace and military contractor. Despite some controls on rare earths easing, constraints on the supply of samarium show no sign of a similar trend.
Lastly, if these London talks have necessitated U.S. concessions to China, it does not indicate a reduction in its economic offensive against Beijing. Regardless of the tactical modifications it might be compelled to adopt, the strategic goal of inhibiting China remains unwavering. And with the relative failure of economic measures to achieve this, a heightening of military measures is likely.