America usually has other countries over a barrel. Not the other way around – unless you’re old enough to remember when the Organization of Petroleum Exporting Countries (OPEC) cracked the whip and Washington and the West usually fell in line.
But last week China forced President Trump to back down on tough tariffs that were hurting the PRC.
Why the retreat?
Rare earth minerals. They’re nearly all sourced from China and Beijing choked off exports.
Major American companies – car makers for example – warned Trump they’d have to curtail or shut down operations in a matter of weeks.
That’s never good for an incumbent party’s political prospects.
The Trump administration reduced tariffs in exchange for Beijing’s sort-of agreement to allow rare earth exports to US customers.
How much and how fast is unknown – but expect the PRC to slow-roll this and squeeze all it can – such as sensitive business data – from its customers.
At best, this is a temporary reprieve.
The US side also agreed to drop plans to ban Chinese students from US universities.
One also suspects a quiet agreement to relax US controls on semiconductor and AI-related technology exports to China.
US tariffs remain at 55%, but that’s much lower than the 145% originally imposed. And the PRC probably can handle that level.
There’s still a 20% “fentanyl tariff” imposed for Chinese-origin fentanyl that has killed well over 500,000 Americans over the last decade.
The rare earth roadblock
China controls around 90% of the world’s rare earth processing. And America imports most of its rare earths from the PRC.
It’s not that they are rare. The US has plenty of rare earths. It’s just much cheaper to source from China, and US environmental laws make domestic mining and processing difficult and expensive.
They are essential for commercial manufacturing – cars, electronics, computers, etc.
And more ominously they’re needed for military production – to include aircraft, ships, submarines, radars, missiles, lasers, satellites, guidance systems, night vision devices and more.
It’s not Trump’s fault. He got caught holding the hot potato.
China’s chokehold on rare earths was known a long time ago.
American business and the US military knew. And Congress knew as well.
And they knew the Chinese might use their dominant position to squeeze other countries.
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Author: Grant Newsham
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