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United States of America And China We are not going to solve all the issues facing presidents that divide them donald trump and Xi Jinping will meet in Busan, South Korea, on Thursday.
But they are likely to make enough progress on China’s hold on strategic minerals, US export controls and other thorny problems to calm financial markets and prevent their rivalry from causing more economic damage for now.
“They’re trying to find some kind of peace,” said Jeff Moon, a former US trade official and diplomat who now runs the China Moon Strategies consultancy. “There’s no pretense that they’re going to reach a big deal that will solve everything in the relationship.”
Both countries sent reassuring signals over the weekend that a deal is nearing.
China’s top trade negotiator Li Chenggang told reporters that Washington and Beijing “Preliminary consensus” was reached. Trump’s Treasury Secretary, Scott BesantSaid that it was “a very successful outline.”
Trump himself expressed confidence that Chinese officials “want to make a deal and we want to make a deal.”
Before talks in Kuala Lumpur, Malaysia, over the weekend, US and Chinese negotiators had met four times before this year – in Geneva in May, in London in June, in Stockholm in July and in Madrid in September – but only managed to reach a truce to avoid rising tariffs and a vague agreement “framework” that contained nothing of substance.
When new tensions escalated earlier this month, Trump was threatening to impose another 100% tariffs on Chinese products on November 1 — on top of an already high 57.6%, according to calculations by Chad Bown of the Peterson Institute for International Economics.
But in a sign that both countries are making progress, Besant said on CBS’ “Face the Nation” on Sunday that those penalizing the three-figure levy are “effectively off the table” as negotiations continue.
Here are some areas of contention between the world’s two largest economies.
Beijing’s rare-earth kugel
China is the world’s leading producer and processor of rare-earth minerals and related technologies critical to fighter aircraft, robots, electric vehicles and many other high-tech products. In a show of force and the leverage it brought to the negotiating table, the country has limited exports of the elements, crippling US and other foreign companies. Most recently, they tightened restrictions on October 9, just before the Trump-Xi summit.
“Rare earths are now the most effective lever that China can pull,” said Zongyuan Zou Liu, senior fellow at the Council on Foreign Relations. “The rest of the world does not have readily available or affordable productive capacity.”
The United States and other countries are investing heavily in rare earths to break China’s dominance but it may take years to bear fruit. “They realize this is not a lever they can pull forever,” Liu said, “so they want to use it when it really hurts.”
Besant said on ABC on Sunday that she hoped China would delay rare earth export controls for a year while they re-examined it.
Piny Althaus, who founded USA Rare Earths in 2019 and now works as CEO of Cove Capital to develop new mines in Kazakhstan and Uzbekistan, said the threat of more Chinese sanctions on rare earths will always loom over the US unless new supplies are developed. “The United States must urgently create independent critical minerals supply chains,” Althaus said.
China’s soybean purchase
Rare earth is not China’s only resource. American farmers – among Trump’s most loyal supporters – have traditionally relied on China to buy about a quarter of the soybeans they produce. But China has stopped buying US soybeans this year and has chosen to use Brazilian and Argentinian suppliers instead.
On NBC’s “Meet the Press with Kristen Welker” on Sunday, Bessant, who herself owns soybean farming land, suggested the American heartland could get relief. “We’re going to be able to discuss adequate soybean and ag purchases for American farmers,” she said.
Mike Steenhawk, executive director of the Soy Transportation Coalition, said farmers will be looking for specific information about how many soybeans China can promise to buy and how enforceable the agreement is. He said it was important that China follow up on a general promise to buy more American soybeans.
“Nothing will really discourage farmers if there is a very ambitious announcement, but then nothing happens,” he said.
In a note, Gabriel Wildau, managing director of consultancy Teneo, asked how much appetite China really has for US soybeans after buying such large quantities from Brazil and Argentina. Still, Beijing “would be willing to resume some U.S. purchases as a goodwill gesture, even if doing so requires building up reserves above normal levels,” Wildau wrote.
US export controls
China is hoping for relief from tight US controls on sensitive technology exports that Chinese companies rely on.
Last month, the US Commerce Department issued a new rule to broadly expand export restrictions not only on previously blacklisted foreign companies, but also on affiliates in which they own at least a 50% stake.
Jeffrey Kessler, Under Secretary of Commerce for Industry and Security, says the rule will “close loopholes and ensure that export controls work as intended.” China immediately protested, calling it another “typical case” of the US overreaching national security and abusing export controls. The Chinese Commerce Ministry says the act is “extremely bad” and “will seriously harm the legitimate interests of companies.”
Ted Murphy, trade lawyer at Sidley Austin, wrote in a commentary that the U.S. could ease sanctions, just as China is expected to ease its rare-earth controls. “President Trump is in ‘deal mode’ and the opportunity to meet in person with President Xi is unlikely to pass up without a deal.”
Nevertheless, Besant told “Face the Nation” that “there is no change in our export controls.”
Trump’s drug-trafficking tariffs
In February, Trump imposed a 10% tax on Chinese imports to push Beijing to do more to stem the flow of chemicals that can be used to make fentanyl. A month later he doubled it. For several months, Beijing has been frustrated by the lack of progress in working on an agreement to end fentanyl tariffs. A senior Chinese public security official once traveled for trade talks, but there was no American counterpart to meet him.
Chinese officials had expressed displeasure that the Trump administration failed to recognize steps taken by Beijing in the final year of the Biden administration to address drug trafficking. They are also confused because the Trump administration has been unclear about what it wants from Beijing. China has retaliated by imposing new 10% or 15% tariffs on several US agricultural goods, including soybeans.
Besant said Sunday that discussions with China led to preliminary agreements to block precursor chemicals from coming to the U.S., raising hopes the U.S. will at least consider reducing fentanyl tariffs.
‘We cannot separate’
Whatever progress the two countries make on specific issues, major problems remain, Moon said.
The most difficult thing is that China has decided to dig itself out of the economic crisis caused by the collapse of its housing market by reducing factory production and flooding the world with low-priced products.
But the United States and other wealthy countries are determined “not to let Chinese overcapacity hollow out their industries and destroy their industrial base. These are completely incompatible trends,” Moon said. “Both countries are deeply committed to them.” And for that reason, I see no end.
“We cannot be apart. There are some things we both need from each other… If you keep trying to harm the other side without end, both sides die from a thousand injuries.”
Moon said the only way forward is to “strategically try to remove friction — basically slapping on Band-Aids without actually curing the disease.”
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Josh Funk reported from Omaha, Nebraska.