A new era of trade warfare has begun for the US and China

Time of India

3 days ago

WASHINGTON: The U.S.-China trade conflict is quickly morphing into a fight over global supply chains, as the two nations limit the sharing of critical technologies that could have lasting consequences for scores of industries.
The United States last week suspended some sales to China of components and software used in
jet engines
and semiconductors, a response to a clampdown by Beijing on the export of minerals used in large sectors of manufacturing. Both sides over the past few days have accused the other of operating in bad faith.
The supply chain warfare, which comes on top of tariffs the two countries have inflicted on the other's imports, has alarmed companies that say they cannot make their products without components sourced from both. And it has made officials in Washington increasingly nervous about other choke points where China could squeeze the United States, including pharmaceuticals or shipping.
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"The supply chain wars that we've been speculating about for years are now happening," said Liza Tobin, a former White House national security adviser who is now the managing director at Garnaut Global, a risk advisory firm.
In recent weeks, the airplane industry has emerged as both a weapon, and a victim, in this fight.
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The jet engine technology that powers airplanes, and the navigation systems that control them, largely come from the United States, developed by companies like General Electric. In China's quest to build a viable competitor to Boeing, for example, it has had to source engine technology from GE Aerospace.
But a jet engine also cannot be made without China. Minerals that are processed there are essential for special coatings and components that help the engine operate smoothly at high temperatures, as well as other uses.
Beijing restricted exports of those minerals, known as rare earths, in April after President Donald Trump began imposing high tariffs on Chinese imports.
The move has threatened to shutter what is left of advanced manufacturing in the United States -- including the work done by many defense contractors. In May, Ford Motor temporarily closed a factory in Chicago after one of its suppliers ran out of the magnets it needed to build cars.
The United States responded with its own tech restrictions. Last week, U.S. officials suspended some licenses that allowed American companies to ship airplane technology to China, as well as others related to biotechnology and semiconductors, people familiar with the move say.
At the same time, officials in the departments of Defense and Interior and the National Security Council are accelerating efforts to find more domestic supplies of rare earths, including considering U.S. government funding for new mines and processing facilities, people familiar with the matter said.
But any such efforts could take years to come to fruition. On average, it has taken the United States 29 years to develop a single mine, according to statistics from S&P.
The Trump administration is also weighing further actions. It has been considering including major Chinese chipmakers, as well as units of Chinese technology giants like Alibaba, Tencent and Baidu, on a so-called entity list that prohibits them from engaging in trade with the United States, people familiar with the discussions said.
The supply chain battle has been years in the making. And both countries have been trying to guard against the other's control of strategic goods by diversifying their own sources of supply.
After Trump levied tariffs on China during his first term, many American companies established factories in countries outside China, including Vietnam and Mexico. Xi Jinping, China's leader, set out to make his country less reliant on foreign sources of energy and technology by pumping huge investments into factories making semiconductors, solar panels and electric vehicles.
Even so, the economies remain deeply integrated, an intractable reality as hundreds of billions of dollars in trade flow across the Pacific each year. While both countries are resolved to reduce their dependencies on the other for national security reasons, doing so will be expensive and painful.
NYT News Service
A cargo ship at Yangshan Port in Shanghai, Feb. 1, 2025. The U.S. and Chinese economies remain deeply integrated, with hundreds of billions of dollars of trade flowing across the Pacific each year. (The New York Times)
Since 2022, for example, the United States has been steadily expanding a global system to regulate advanced semiconductors and stop the technology from flowing to China. The rules have been aimed at restricting China's access to artificial intelligence and advanced computing needed to augment its military. But they have been met with fierce resistance from an industry that sees China as an important source of revenue.
The United States has extended these export controls around the world, even forbidding companies in other countries from selling products to China if they use American parts, technology or software to manufacture them. While some foreign governments have bristled at these rules, many have fallen in line.
This system rests on the idea that the United States should be the sole global power whose rules other countries need to abide by. But for China, rare earth minerals are a way to challenge the American assertion of dominance.
Beijing set up a licensing system that allows it to monitor and approve sales of rare earths, and magnets made from them, to companies worldwide. When Trump ratcheted up tariffs on China to 145% in April, Beijing responded by targeting shipments of rare earths, including pausing many of them.
In May, American and Chinese officials arranged a meeting in Geneva to try to defuse their trade tensions. The Trump administration had several reasons to try to strike a truce. Companies had been warning of the risk of empty store shelves later this year because of plummeting imports from China, and stock and bond markets were flashing warning signs. But it was China's rare earth restrictions that appeared to put the most pressure on the United States to reach a resolution.
Negotiators agreed in Geneva to lower tariffs. As part of the deal, China said it would "suspend or remove the non-tariff countermeasures taken against the United States since April," according to a joint statement.
U.S. officials say Chinese shipments have yet to return to their previous levels. During an appearance on CNBC on Friday, Jamieson Greer, the U.S. trade representative, said that the Chinese were "slow-rolling their compliance" and that American officials "haven't seen the flow of some of those critical minerals like they're supposed to be doing."
Trump was more blunt. In a post on Truth Social on Friday, he wrote that China had "TOTALLY VIOLATED ITS AGREEMENT WITH US," adding, "So much for being Mr. NICE GUY!"
Lin Jian, a spokesperson for the Chinese Ministry of Foreign Affairs, denied the accusation in a briefing Tuesday, saying that China had "earnestly implemented" the consensus reached in Geneva. Chinese officials say it is the United States that broke the deal, including by issuing a notice saying that the use of chips made by Huawei, the Chinese technology firm, anywhere in the world violated U.S. law.
"The U.S., without any factual basis, has smeared and accused China, imposed export controls on chips, suspended sales of chip design software to China and announced the cancellation of Chinese student visas -- extreme measures that severely undermine the Geneva Consensus and harm China's legitimate rights and interests," Lin said.
While some U.S. auto and electronics makers have recently received licenses from China for mineral shipments, the uncertainty and continued backlog of requests for the products are continuing to make companies nervous. China had also appeared to be giving preference to European companies over American ones.
The tensions are spilling over into other aspects of the United States' diplomatic relations with China. The Trump administration has also proposed plans to "aggressively revoke" visas of Chinese students, including those with ties to the Communist Party.
It is unclear how the tensions can be defused. Karoline Leavitt, the White House press secretary, said Monday that Trump and Xi would likely speak in a call this week. The Chinese foreign ministry spokesperson said he had "no information to offer" on the call.
Daniel H. Rosen, the co-founder of Rhodium Group, a research company, said that Beijing recognised years ago that rare earths would be central to advanced technologies and subsidised the build-out of those supplies. The United States, he added, "horribly underestimated" the demand for them.
China mines 70% of the world's rare earths, but it does the chemical processing for 90% of them. The country also makes more than 80% of the world's batteries, more than 70% of its electric cars, and about half of the world's steel, iron and aluminum, according to data from the International Energy Agency.
Securing an alternative supply would likely require the United States to invest hundreds of billions of dollars, Rosen said, and cooperation with global partners who were willing to work to set up supply chains outside China.
"It's going to be expensive," he said. "We have a long way to go."
While some shipments of minerals have restarted, many U.S. industries remain anxious about shortages of supplies. Paul Triolo, a partner at Albright Stonebridge Group, said that the Chinese licensing system was cumbersome and that there had been a notable drop in shipments of critical minerals since the start of April, when Trump first issued astronomical tariffs on China.
Triolo said the United States had no choice except to negotiate with Beijing on the issue, as well as set up a long-term strategy with other countries to reduce its dependence on China over the next five to seven years.
"This problem is deep and long lasting," he said. "It will not go away, or be easily solved."