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I have a great relationship with Presidency. I expect to be able to make a good deal with him, and he'll make a good I want him to make a good deal for China, but it's got to be fair.
Ahead of a high stakes meeting with Chinese President Shijenping next week, US President Donald Trump said he looks forward to making a trade deal.
Certainly, there are a lot of people that are waiting for it, and maybe it won't happen. Maybe it won't happen. Things can happen where for instance, maybe somebody will say I don't want to meet it's too nasty, but it's really not nasty. It's just business.
If the meeting on the sidelines of the annual Apex summit goes as planned, it would be Trump and She's first in person conversation since Trump began his second term and launched a trade war that's upended the relationship between the world's two largest economies.
U US went from negligible tariffs on China to ten percent, then twenty, then fifty four, then one oh four, then one forty five.
There's no shortage of sticking points in a potential trade deal between the US and China, but Bloomberg's Daniel ten Kate, Executive editor of Government and Economics in Asia, says he's watching one critical element of these negotiations closely.
As long as China agrees not to really disrupt the flow of rareth magnets, then you could see that they could come to some sort of agreement where they extend this tentative truce.
When China announced sweeping new controls on its exports of rare earth's earlier this month, Treasury Secretary Scott Bessentt accused Beijing of pointing a bazooka at the global supply chain. Trump threatened to call off talks the sheet altogether and add an additional one hundred percent tariff on China, but within forty eight hours Trump had backed off.
I want them to play the rare earth game with US, and.
On Monday, the President signed a landmark deal with Australia to boost the supplies of rare earth as a strategic counter to China. The deal outlines eight and a half billion dollars worth of projects, with both nations initially committee one billion dollars over the next six.
In about a year from now, we'll have so much critical mineral and rarer so that you won't know what to do with him.
His retreat was proof that the rare Earth's bazooka is a weapon to be reckoned with and gives China serious leverage in this trade war with the US.
Trump took his biggest swing at China and he was forced to back down. And for Shijimping, that was a big political win. He was the only leader in the world who had enough ammunition to be able to force the Americans to back down. It is a game changer, and I think the US and China are both coming to terms with this. You see the US realizing that all of a sudden, China is these rights and China's put the US on the back foot a little bit. Here.
This is the Big Take Asia from Bloomberg News. I'm Wanha. Every week we take you inside some of the world's biggest and most powerful economies and the markets, tycoons and businesses that drive this ever shifting region. Today on the show, China has dominated the rare Earth's world for decades, but it's only now begun to make the most of that influence. We'll look at how it's using American trade tactics to press its rare earth's advantage and explore what weapons the
US has in its arsenal. To fight back, China introduced new rules this month, the clamp down on the supply and use of rare earths. Bloomberg's Dantan Kate says the curbs go much further there then previous restrictions.
If any product contains even a trace amount of rare earth, then China has the right to restrict that product. So if you have zero point one percent of rarest to make any given product in the world, you need a license and permission from China. Previous actions China cut off supplies of rare earth to various companies. So if you needed rare earth to make an electric vehicle, for instance, and you bought that from China, China was saying, you need a license to get these rare earths, whereas before
you could freely buy them. Now, what China has done is they're not just stopping the rare earth from getting to those factories, but they're saying, even if you use those rarest to make that car, if you want to sell that car to another country, you're also going to need permission now that just seems completely unworkable in reality, and that's what raises questions about, Okay, are they going
to put a stop to global trade. No, that's not in China's interest at all, but they are asserting the right to effectively intervene whenever they want.
The rules are set to take effect later this year, and while it's unclear how Beijing plans to enforce them, Dan says the move shows just how powerful a weapon rare earths can be for China.
They control a lot of the supply, somewhere in the neighborhood of about seventy percent of that. But what China's real advantage is that they can process the rare eer. So once you take the rare eers out of the ground, you still need to ship them to somewhere where they can be processed into a material that can then be sent to a factory that can be used to make a phone or make a TV or something like that.
And China controls nearly all of that technology now. The US used to be the world's largest producer of wearers, and they let that atrophy and disappear to China back in the eighties and nineties. So the issue is now that the amount of rarer supply that includes no Chinese minerals or any processing by Chinese technology using Chinese technology is very small, and is.
It viable then for the world to somehow very quickly establish another supply chain for wearers that doesn't rely on China.
It depends on who you talk to there. Again, I mean Trump will say in a year, will be okay, We'll have enough supplies, We'll be able to get the processing up and running. In the US is doing I mean the Pentagon has taken a steak MP Materials, which owned the largest rarest mind in the US, which is based in California. We've also seen the US government taking equity stakes in some Australian producers. You have Australia pitching
ITSLF as the savior in this regard. But the problem there is that if you talk to certain people in the industry, they say, actually getting the technologies up to process these heavy rare earths is not that easy. It actually takes a lot of time to come up with and you're starting from scratch almost because you've lost some
of the materials to do that. The issue also is that even if you have a country like Malaysia processing a lot of rare earth, if they're using Chinese equipment, then China can also block those wearers from going to the US. So the amount of the rare earth's supply chain globally that doesn't just include minerals from China, but also doesn't rely on Chinese technology to process those minerals, that is very small, and that is the fundamental issue.
Now, China has spent years cultivating its rare earth industry. Today it dominates the market as a producer and refiner of these vital minerals, but it's only recently been trumping the rare earth card in trade negotiations.
If you look in the nineteen eighties, China's known that it has where dung Jopping at one point said the
Middle East has oil, China has rare earth. So they started processing really once China emerged from the mal years and they started opening up the country, rare earth was one of the first industries that they really started to develop, and you saw a lot of the rarest production moving from the US and other places to China in the nineties and by the two thousands, they've had a very firm grip on the supply almost ninety ninety five percent.
Things really came to a head in twenty ten when there was a territorial dispute with Japan, and China cut off rare earth then, and that really spooked Japan, and the world really had known that, Okay, we can't rely on China anymore for supplies of rare earth. China can just flip a switch, cut us off, and then suddenly we don't have the building blocks we need to produce a lot of the technology and products that are used
in the modern economy. But even after that, we're still here fifteen years later, and China still has a stranglehold on the world supply.
Rare earths have been central to negotiations between the US and China since Trump relaunched his trade war earlier this year. When Trump imposed tariffs of more than one hundred percent back in April, she cut off crucial rare earth supplies to the US. The resumption of rare earth shipments was top of Trump's wish list during trade talks with China in June. It was also a key component of the trade truce between the two countries that's set to expire next month.
The fundamental part of the truce is that the tariffs go down to round fifty five percent, and in return, the US gets enough rare earth magnets that it needs to function to keep its factories open. The issue is that China really wants the US to stop putting any other measures on. China saw the deal as we want no more export controls, we want no more punitive actions
against Chinese companies. So they saw the Commerce Department in particular doing that and the Hawks of the United States continuing to press ahead with that, and they basically just said, we need to put a stop to this, and we're going to take this opportunity to put this really big measure in place.
China's latest moves pressing its advantage with rare earths were met with outrage in the White House, but their tactics taken directly from America's own manual on how to wager trade war. After the break, well, look at how China is trying to beat America at its own game and how the US is retaliating. During Donald Trump's first term in office, he dropped the hammer on China, blacklisting Chinese telecom giants and cutting the country off from critical US
chips and software. Of course, Huawei not the only one affected by these decisions are the blast radius in terms of Huawei supplies pretty well. Overnight, Huawei, China's crown jewel in tech and the world's biggest maker of telecom gear, found itself scrambling, and so did Beijing. For all its economic muscle, China had no real way to strike back.
Bloomberg's Dan ten Kate says that moment was a wake up call for Chinese present Shi Jinping to look at how the US used the law to shape export rules and control global trade and copy that playbook.
The US basically owed China the way for doing all of these things. And so what you saw was after Trump's first term, Xijinping went out and he got those tools, and in twenty twenty they passed an export control law that gave them the ability to do everything that the
US was currently doing to them. And if you look at the current rule, this rule that okay, if there is even a trace amount of errors, we can control everything that comes directly from something called the foreign Direct Product rule, which the US passed that in nineteen fifty nine.
The Foreign Direct Product Rule, it allows the US to ban the sale of products to foreign firms if any part of a product is made with American intellectual property.
Over the years, the US would implement that against China. So there was an exchange one in particular where Walter Mondale, the Vice president of the time, went to China and he spoke with Donghaoping in nineteen seventy, and a lot of that conversation was around, okay, what can you sell us, and Dung at one point expressed frustration. He said, the Japanese and the Europeans won't even sell us a product because it as an American component. And that principle is
essentially what China's doing today. If you have a bit of wearers that's been manufactured through our processes, then we assert the right to be able to control that. And China's ultimate goal here is not necessarily to restrict trade and try and shut down the global supply chains. It certainly doesn't have the capability to enforce that at all, but it does want the same tools as the US, and it wants to show the world that, hey, we
can mess with you any time we want. We can assert the right to come in and block you from doing things.
Dan says, the US still has plenty of weapons of its own, and China isn't in a good position to fight off a sustained attack on trade. It's struggling with manufacturing overcapacity, a slump in consumer spending, and an AILNK property sector. Dan says it's not that America's trade measures wouldn't be highly effective against China, it's that using them could be risky to the US.
The US has a lot in its arsenal. The question is what measures can the US put in place that won't blow back on America, and that looks limited to things like airplane parts, chip design, software, ethane, and a few other things that China needs that the US has now. The other big one is tariffs. Obviously, if Trump wanted to put one hundred and fifty percent tariffs on Chinese goods heading into America, that would do serious i economic damage to China, but it would also hurt the US.
Also controls the financial system, so it could do drastic things there, but again, anything they do on that front will also blow back at the US. So Trump is looking for something that he can hit China with that wouldn't hurt the US and there's not too many great options. He can do some things, but ultimately he wants a deal where everybody wins.
Now, looking ahead, Trump and she will meet at the APEX summit in South Korea next week. What are the likely outcomes that we can expect from that?
As long as China agrees not to really disrupt the flow of rare earth magnets, then you could see that they could come to some sort of agreement where they extend this tentative truce. Trump also wants the TikTok deal completed and she needs to sign off on that, so that's another thing that could come out of it. And the other major thing is on soybean purchases. That's a big constituency for the US and for Trump. So China's not blowing soybeans anymore, and it says it can't because
the tariffs are too high. But if there's some agreement on that, then that could also be something we see out of that.
Meaning So it sounds like there are things that both countries want that could still make them walk away and say we got to win. Yeah.
I think the ultimate problem here is that the space for a deal is very limited by all the national security restrictions that both sides have on each other. I think that they don't really see a deal until you get particularly Congress and the Hawks and Washington coming to the conclusion that it's okay to have China involved. That's just politically very difficult to see, particularly with all the concerns about Chinese spying, China's military mighty. You'd have to
fundamentally change the conversation in Washington now. Trump during his first term he basically flipped the conversation on China and turned it into a bipartisan consensus against China and for more hawkish posture towards China. So if anyone can change the conversation in Washington toward China, it could be Trump.
But Beijing's move to leverage its rare earth advantage has now boxed Washington in limiting its options and raising the possibility that this dispute may have no clear resolution, at least not anytime soon.
If you think about the leverage that both sides have on each other. Right now, China has this rare earth card, so what is the US doing. They're working over time to try and create an alternative supply chain, so they're no longer dependent on China's doing the same thing on
their side. They're trying to maintain this advantage as much as possible, and also look at the areas where the US has leverage over them, particularly on high end Nvidia chips, and they're trying to build their own chips so they're not relying on the US. So both economies are necessarily looking for ways to work together over the long term. They're looking for ways to not be reliant on each other. Neither country has any leverage on them, and that's where
they're heading. And so that dynamic doesn't lead need to be optimistic that we're going to get a long term conclusion to this anytime soon.
This is The Big Take Asia from Bloomberg News. I'm wanha. To get more from The Big Take and unlimited access to all of Bloomberg dot Com, subscribe today at Bloomberg dot com slash podcast Offer. If you liked the episode, make sure to subscribe and review The Big Take Asia wherever you listen to podcasts. It really helps people find the show. Thanks for listening, See you next time.