[ad_1]
President Donald Trump’s preference for cutting one-on-one deals with allies and adversaries has been a hallmark of his self-proclaimed bargaining magic, but with the China trade truce headed for collapse, the fragility of such an approach has been exposed.
China’s Commerce Ministry unveiled sweeping new export controls on rare earths and other critical materials that are vital to U.S. defense and technology applications late Wednesday New York time. The news sent shockwaves through those specific groups, but there was no similar reaction in the broader markets.
That is, until Trump’s nearly 500-word Truth Social post, published around 11 a.m. in New York on Friday, threatened a “huge increase” in tariffs on goods coming from China. The move sent major US indices into a one-day decline. Hours later, Trump said he would impose additional 100% tariffs on China starting Nov. 1 — threatening to push rates closer to what both sides warned earlier this year would represent an effective decoupling. He also announced plans for export controls on critical software.
The sudden, and unexpected, back-and-forth between the world’s two largest economies came just weeks before a bruising meeting between Trump and Chinese President Xi Jinping in South Korea, where the two sides were expected to discuss the details of a broad-based trade agreement. The central leverage of the negotiations is export controls – specifically, the US’s existing export controls of semiconductors and AI chips needed by China and China’s export controls of critical minerals and magnets needed by the US.
“China saw their response and leverage with export controls earlier this year, so it’s not surprising they would engage in these negotiations to try to stack the deck in their favor,” said John Hillman, a senior fellow in geoeconomics at the Council on Foreign Relations. “Any agreement will always be at risk if China decides to use that leverage again.”
In May Trump negotiated a 90-day ceasefire with China, delaying the implementation of new tariffs or export controls he threatened during his “Liberation Day” proclamation in April. The move calmed global markets amid a sharp increase in tariffs and retaliatory tariffs, which briefly pushed U.S. tariffs on Chinese goods to as high as 145%.
China similarly agreed to lift export restrictions on its critical minerals and magnets. However as the months passed, Trump’s allies in agricultural states began to complain that China had essentially cut off imports of US soybeans – a move the President described as a negotiating tactic. The White House has said it is planning an aid package for farmers, although specific announcements have not been made yet.
Nevertheless, it was a relatively peaceful ceasefire period. But that all ended this week, when China announced increased export controls. Now, like six months ago, the two economies are once again on the brink of a trade war.
This is the uncomfortable reality of many of Trump’s bilateral trade negotiations. While U.S. and global markets react positively to grand announcements that the president has agreed to or delayed a deal — with China, with Russia’s Vladimir Putin, with India, and others — often the blow comes when Trump or his trading partners renege on their promises, throwing new uncertainty into the deal.
“The US is now more assertive, well-prepared, less US-dependent, and self-confident, working with Beijing than during Trump 1.0,” Wendy Cutler, senior vice president of the Asia Society Policy Institute, wrote in a LinkedIn post on Saturday, when the so-called “Phase One” agreement that offered Beijing a number of concessions was signed. “There has been no doubt in the last 24 hours that those days are over.”
US stocks suffered their worst selloff in six months on Friday. Wall Street’s main fear gauge hit levels not seen since April. Nvidia Corp, the world’s largest public company and caught in the middle of export control talks between the two countries, fell about 5%. All this happened after a social media post by the President.
“We’ve really been avoiding taking on too much exposure to equities from the perspective that there’s a lot of uncertainty and risk out there,” said Dan White, head of research at Blue Creek Capital. “The sentiment in the market was showing us a rosy scenario, but the reality is there was a lot of risk and uncertainty, so today was a wake-up call for a lot of people.”
The U.S. can more easily negotiate bilaterally with smaller countries that are in a weaker position, but when it comes to larger countries like China, collective responses are more effective, according to Cutler, who spent decades negotiating deals for the government at the office of the U.S. Trade Representative.
The president floated the idea that he would not be able to meet Xi in South Korea due to heightened tensions, but experts believe the Chinese announcement and Trump’s reaction are part of negotiations ahead of the actual meeting. However, the worry among many, including hawks and former Trump administration officials, is that China’s hand is stronger than ever.
“Among the Chinese media in China, there is a recognition that China holds the levers and is using the levers to substantially weaken our manufacturing sector, including semiconductors, AI and defense articles,” said Nazak Nikkhtar, a former Commerce Department official during Trump’s first term and current partner at Willy Rein, who represents clients in those industries.
“But if you make a handshake deal, it’s classic game theory: The other party will evaluate your reaction if they renege. And if they think you’re chicken, they won’t follow through on the deal.”
With assistance from Brendan Murray, Natalia Drozdiak and Eric Martin.
This article was generated from an automated news agency feed without any modifications to the text.
[ad_2]
