It seems that trade-based bickering between China and the US is far from over. The longtime rivals have found yet another point of contention in mineral trade. The US president, Donald Trump, and China’s president, Xi Jinping, are bound to meet soon to discuss the issue.
When two such large economic forces clash, they’re bound to send ripples through the worlds of finance and trading. The exchange between the US and China regarding tariffs previously sent the markets into chaos, with multiple record-breaking events occurring, some quite welcome like gold reaching record highs, and some devastating like US indices experiencing their biggest one-day loss.
This article will present the background for the mineral trade issue at hand, the prospects for resolution, and the implications for the trading world.
China implements export control
In April, China imposed export control on seven key rare earth minerals. The control measures meant that each shipment had to undergo government approval. This made it easier for the government to control this vital supply chain, which it has a large stake in globally.
As per the Chinese government, these measures were in line with international practices. It stated that the measures weren’t aimed at any country in particular. However, the US thought that the move was targeted, and a retaliation for the 145% tariff it imposed on China earlier. US spokespeople called negotiations difficult, but both sides were open to an amicable agreement.
90-day rollback on critical mineral tariffs
In mid-May, in a meeting in Geneva, the US and China decided to implement a mutual 90-day rollback on all levies and restrictions regarding critical mineral resources. The deal aimed to ease the pressure that the 145% tariff put on Chinese goods. This would allow China’s trade to flow more easily, while the US could get the resources it relies on.
China committed to resuming key mineral exports, previously paused due to the tariffs. As a part of the deal, China also had to expedite export licences, as a way of smoothing trade and making up for the previous supply chain disruption.
Some saw this as both countries testing the waters for a potential end to the current de facto trade war. However, those hopes would quickly be quashed as accusations of breaking the deal came from both sides.
Accusations; Tensions rising
In late May on Truth Social, the US president has issued a statement noting his dissatisfaction with the practical state of the US-China deal. He claimed that China was violating the agreement, and noted that he only took the fast deal to save China from a bad situation.
His dissatisfaction was put into action with multiple measures. Numerous Chinese students studying in the US had their visas revoked. This measure specifically targeted those with ties to the CCP and those enrolled in so-called sensitive fields (tech and engineering).
Additionally, multiple trade measures followed. The US attempted to control semiconductor design software exports, directing major firms to stop electronic design automation (EDA) software exports to China. These measures aim to stagger China’s development in the sector.
Similarly, the US added restrictions to AI chip exports, limiting access to the latest AI technologies. However, this move may hurt the US AI sector as well. The CEO of Nvidia, a frontrunner in the industry, has voiced his concern about disruptions limiting opportunities for the company. Its stock has also reacted adversely to the limitations.
Lastly, the US has increased import taxes of steel and aluminium to 50%. It’s clear that the move is retaliatory to at least some extent, and it may push tensions between the US and China.
Why is the rare mineral deal so important?
One important thing to understand is that China nearly fully controls the rare mineral market. As such, a trade disruption here would significantly harm the US’ ability to access these resources. And that access is important because these earth minerals are widely used, both commercially and industrially.
Magnets made out of these minerals are a part of numerous technologies. They are used in mobile devices like iPhones, as well as EVs like Teslas. As such, a disruption in the supply chain may hurt major US companies.
Additionally, they are a crucial component of military technology. For instance, F-35 fighter jets and missile systems use these magnets in their systems. With the US having the largest military and military investments in the world, difficulty in constructing high-end weapons may cause significant issues.
Lastly, on China’s side, the US is quite a significant mineral importer, so it has direct economic interest in a deal. However, as it holds the strings, it’s showing less urgency in negotiations. It deemed the US’ stance as promoting friction and further fuelling the trade war.
Trump and Xi to speak: Hopes of a mutually beneficial resolution
The final resolution remains unclear. Both the US and China have taken strong, somewhat hostile stances towards one another. However, a potential end may be in sight.
Although Trump has not said anything himself, his aides have implied that he’s likely to talk to the Chinese president directly. “On Sunday, Treasury Secretary Scott Bessent noted that the president doesn’t have a call scheduled yet. However, he said arrangements are underway and added that news could be expected soon.
Conclusion: Possible market impacts
With a volatile situation such as this, it’s impossible to accurately predict what could happen. However, in general, the market reacts well to de-escalating tensions. As such, global indices and stocks, particularly ones in the US, may see an uptick if the resolution leads to smaller tariffs or more friendly trade between the US and China.
However, both parties are going in with guns loaded. A poor negotiation may result in further tension escalation. The automotive industry, particularly EV-dependent companies like Tesla may see a drop in their shares due to a supply chain disruption and rising costs. Additionally, if tariffs rise, indices and stocks are likely to drop, as traders pull back amid uncertainty.
Lastly, even chaos may prove opportune. Since Trump’s tariff who have flocked to safe-haven assets like gold and JPY or taken short positions on US-based assets seem to have found their market niche. Importantly, announcements are volatile and market reactions explosive; traders who want to capitalise must keep a close eye on the news cycle.
Disclaimer: This material is for general informational and educational purposes only and should not be considered investment advice or an investment recommendation. T4Trade is not responsible for any data provided by third parties referenced or hyperlinked in this communication.
