US-China: Who has the better prospects of withstanding a prolonged trade dispute? | DW News

Tit-for-Tat Tariff Dispute: US vs. China

Key Concepts:

• Tariffs
• Retaliation
• Trade War
• World Trade Organization (WTO)
• Rare Earth Elements
• Export Restrictions (Non-Automatic Licensing, Quotas, Tariffs, Full Ban)
• Critical Minerals Security
• Heavy Rare Earths
• Stockpiling
• Supply Chain Vulnerability

1. Escalating Trade Tensions and Tariff Increases

• President Trump announced an additional tariff on China, increasing it to 125% in response to China's retaliation against the US.
• Trump stated this action was due to China's "lack of respect" for world markets.
• China imposed an 84% tariff on US goods in retaliation, vowing to "fight to the end."
• The US claims the tariffs are necessary to revive its manufacturing sector and blames Beijing for the escalation.
• Beijing views the US actions as a mistake and has filed a complaint with the WTO.
• China asserts its right to development and insists its sovereignty, security, and development interests must not be infringed upon.

2. Global Economic Impact and Potential Trade Shifts

• The WTO warns that rising tensions could cause bilateral trade between the US and China to plummet by as much as 80% and damage the global economic outlook.
• Melissa Chan (DW Correspondent) notes that Beijing has been preparing for a potential return of a Republican president and has developed a toolkit to respond aggressively.
• Chan suggests that China may be emboldened by instances where the US has "blinked" or backed down in international situations.
• The dispute could create an opportunity for China to foster trade relationships with other countries (South Korea, Japan, Southeast Asia, India, EU, Canada, Mexico) independent of the US.
• The possibility of a world where the United States is not dominant in the global economy is being considered.

3. China's Rare Earths Dominance and Export Restrictions

• Beijing has also curbed the export of valuable rare earth elements, crucial for many high-tech US industries.
• China is the world's largest source of rare earths, accounting for approximately 90% of global production.
• Rare earths are used in various high-tech products, including computer chips, electric vehicle batteries, medical equipment, and aerospace applications.
• The US imports about 70% of its rare earth needs from China.
• Apple and Tesla are mentioned as companies that source Chinese rare earths in their supply chains.
• Yttrium, dysprosium, gadolinium, lutetium, samarium, scandium, and terbium are seven minerals now subject to China's export restrictions to the US.
• F-35 fighter jets and advanced missile technology are examples of US-built systems that rely on rare earths imported from China.
• Melissa Sanderson states that China strategically selected the rare earths for export restriction that are crucial for the US economy.

4. US Vulnerability and Alternative Sourcing

• Graceyn Baskeron (Director, Project on Critical Minerals Security, CSIS) emphasizes that China has strategically targeted seven heavy rare earths, processing about 99% of them.
• These heavy rare earths are critical for defense technologies (dysprosium and terbium in permanent magnets for aerospace and defense), cancer treatment, and MRI scanners.
• China stopped sending export processing technology for rare earths out in December 2023.
• China's export restriction is currently on the mildest end (non-automatic licensing), requiring companies to obtain a license to export. This allows China room to tighten restrictions if the trade war escalates.
• The US is exploring alternative sources, such as the Serra Verde project in Brazil, for heavy rare earths.
• The US is building heavy rare earth separation facilities in Texas and California, but they are not yet operational.
• Baskeron argues that the US "has come too late to the critical minerals game from a security perspective," creating a significant vulnerability.
• China first restricted rare earth exports to Japan in 2010, but the US acted only a decade later.

5. Rare Earths in Ukraine and China's Stockpiling Strategy

• The mapping of minerals in Ukraine was done 30-60 years ago by the Soviet Union, and there is no modern mapping of rare earths.
• The former director of the Ukrainian Geological Survey has stated that there is no modern mapping of rare earths.
• Rare earths are not actually rare; the key is whether they are economically viable in terms of size and accessibility.
• China is willing to stockpile resources for its own security of supply and to put other companies out of business.
• China's stockpiling and state-backed operations allow it to take losses that Western companies cannot absorb, deterring investment in the rare earths market.
• NDPR (a rare earth compound) prices are low, deterring investment.

6. Conclusion

The tit-for-tat tariff dispute between the US and China is escalating, with potential consequences for global trade and economic stability. China's dominance in rare earth production and its strategic export restrictions pose a significant vulnerability for the US, particularly in defense and high-tech industries. While the US is exploring alternative sourcing and developing domestic processing capabilities, these efforts are not yet sufficient to mitigate the immediate risks. China's willingness to stockpile resources and its state-backed operations create further challenges for Western companies in the rare earths market. The situation highlights the need for the US to address its critical minerals security and diversify its supply chains.