Last December, the newly-elected Donald Trump announced a breakthrough trade deal with China. This agreement represents an important step toward making it easier for American industries to access these critical resources. In a speech last week promoting the deal, he touted how it would accelerate production of rare earth minerals and magnets. These resources are the lifeblood for dozens of industries. The announcement comes after months of contentious negotiations. Both have made serious overtures to repair their at times bitter trade relationship.
The Commerce Ministry of China corroborated Trump’s statement, indicating that both parties had “further confirmed the details of the framework” surrounding the agreement. This most recent advance comes after three rounds of discussions in Geneva earlier this month where both parties further delayed what could have been astronomical tariff hikes.
Details of the Trade Agreement
The deal takes aim at essential supply chains for American industry, as discussed in Trump’s statement. He stated, “We just signed with China the other day,” showcasing his administration’s commitment to strengthening trade ties with the Asian powerhouse.
The agreement is especially important in light of China’s recent imposition of export permitting requirements on seven rare earth elements. Such bans risked shutting down production lines for advanced products, like EVs. To offset some of these shortcomings, the deal contains commitments for faster approvals of rare earth exports from China.
In addition, China’s Commerce Ministry announced that it would approve export applications for controlled items that satisfy set legal requirements. In exchange, the U.S. allegedly agrees to rescind a number of its own overly restrictive measures previously imposed against China.
“It is hoped that the United States and China will meet each other halfway,” – China’s Commerce Ministry
Impact on Tariffs and Future Negotiations
Even with these promising moves in a positive direction, many detrimental tariffs still stand. Washington’s recent steep tariffs on fentanyl trade are having a huge positive effect on the market. Tariffs on aluminum and steel are affecting bilateral trade patterns. Still, the recent style deal is an essential step, the largest single industry trade deal ever signed, toward lowering some trade tensions.
The state of current negotiations between the two biggest economies in the world underscores the complicated nature of US-China relations. As negotiations progress, both parties are looking to work around topics that have been known to create tension in the past. Trump’s administration has been optimistic on future negotiations, suggesting a deal is imminent with India.
“The president likes to close these deals himself. He’s the dealmaker. We’re going to have deal after deal,” – Lutnick
Broader Economic Context
Those quickly changing rules are already rattling both countries’ economies. As they grapple with various challenges, including supply chain disruptions and trade imbalances, both countries recognize the need for cooperation.
Given the state of US-China relations, China’s recent moves on the fentanyl front could be interpreted as a goodwill gesture intended to stabilize relations. Separately, China is designating two additional substances as precursor chemicals for fentanyl. This step indicates that they are beginning to listen to and react to concerns articulated by U.S. public servants.
