U.S. President Donald Trump’s preference to cut one-to-one deals with allies adn adversaries has been the hallmark of his self-proclaimed dealmaking magic, but with the china trade truce seemingly teetering on collapse, the fragility of such an approach has been laid bare.
China’s Ministry of Commerce late Wednesday night New York time unveiled broad new export controls of rare earths and other critical materials that are key to U.S. defense and technologies applications. The news sparked shock across those specific groups, but wasn’t met with similar reaction across 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 “massive increase” of tariffs on goods from China. The move sent major U.S. indexes into a daylong free-fall. Hours later, Trump said he’d hit china with an additional 100% tariff from Nov. 1 – threatening to push rates near 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 ahead of a consequential meeting between Trump and Chinese leader Xi Jinping in South Korea, where the two sides anticipated hammering out the details of a broad-based trade deal. The central leverage of the negotiation is export controls – specifically, the U.S.’s existing export controls of semiconductors and AI chips needed by China and China’s export controls of its critical minerals and magnets needed by the U.S.
“The Chinese saw the reaction and leverage thay had with export controls earlier this year, so it’s not surprising they would head into these talks to try to stack the deck in their favor,” said Jon Hillman, a senior fellow for geoeconomics at the Council on Foreign Relations. “Any agreement will always be at risk if China decides to use that leverage again.”
And they did.
Trump in May negotiated a 90-day truce with China, delaying any implementation of new tariffs or export controls threatened during his April “Liberation Day” announcement.The move quieted global markets rocked by a rapid escalation of tariffs and retaliatory tariffs that briefly saw U.S. levies on Chinese goods reach as high as 145%.
China similarly agreed to lift the export ban of its critical minerals and magnets. However as the months passed, Trump allies in farm states began to grumble that China had essentially stopped importing U.S.soybeans – a move the president described as a negotiating tactic. The White House has said it’s planning an aid package for farmers, though hasn’t yet announced specifics.