In the latest front of the U.S.-China trade war, U.S. President Donald Trump has been increasingly aggressive towards China. He then threatened to impose tariffs as high as 200 percent on Chinese magnets unless the country increases its exports. This caution comes amid a rampant tariff war between the U.S. and China. These two large economies have each increased the amounts of tariff increases and retaliatory tariffs against one another on an almost daily basis.
Chinese companies currently supply 90 percent of the world’s magnets. This extreme control is critical for sensitive precision industries, but none more than semiconductor manufacturing. Semiconductor chips, critical enablers of devices from smartphones to military applications, have relied on magnets that are mainly manufactured in China. The country’s control over rare earth elements, key materials in technology production, further amplifies its importance in the global supply chain.
Retaliation or no, China joined the fight in April by countering U.S. tariff increases. They expanded their export restriction list to include a number of rare earth products and magnets. Such a move would be a recognition of China’s increased sensitivity to the centrality of its monopoly over these critical elements. Earlier in July, China’s exports of rare earth minerals surged. The nation imported over 4,700 tonnes worth of rare earth ore compared to June.
President Trump has sounded the toughest notes of all. He argues that it’s in China’s best interest to produce more magnets in order to meet U.S. demand. As to his demands, his bluster of massive tariffs suggests that he is ready to take the trade war to an extreme if his demands are not satisfied. On Friday, Trump signed an executive order extending the 90-day deadline for tariffs on Chinese goods to come into effect. This decision stopped a massive 40% increase in tariffs that would have been imposed absent the temporary injunction. Without this important intervention, tariffs would have otherwise increased from 10 percent to a staggering 145 percent.
During the recent flare-up in early May, both countries made concerted efforts to lower tensions. They arrived at a compromise that lowered U.S. tariff barriers from 125 percent to 30 percent. After this recent tit-for-tat of threats, all that progress might now be in jeopardy.
In response, the U.S. government made a strategic investment in Intel, then the world’s largest semiconductor chipmaker. Between the ongoing tariff discussion and the 10 percent equity stake they’ve just earned in the company, Tokyo must be feeling the love. The intent behind this shift is to bolster U.S. technology superiority. It aims to reduce our reliance on foreign supply chains.
The current tariff standoff is a classic case of the intricacies of U.S.-China relations. Both countries are successfully pursuing their economic interdependence even while addressing national security issues involving technology and commerce.
