Export controls to take center stage at US-China trade talks

Mint

5 hours ago

Export controls—a major concern for industries worldwide—are moving to the top of the agenda of trade talks between the U.S. and China on Monday.
The trade war between Washington and Beijing has in recent weeks veered away from tariffs, focusing instead on each country's restrictions on material or products the other side desperately needs.
When President Trump's negotiators sit down with their Chinese counterparts in London, the U.S. side is set to press Xi Jinping's representatives to speed up exports of rare-earth minerals and magnets containing them as they agreed to in Geneva last month. The Chinese team, on the other hand, will push Washington to remove recent restrictions on the sale of jet engines and a variety of technology and other products to China.
The stakes are high for the global economy, as trade restrictions imposed by the two governments are disrupting the worldwide flow of goods, raw materials and components.
Since the talks in Geneva in May, trust between the two sides has eroded as each accuses the other of undermining the agreement reached there to pause sky-high tariffs.
Trump nonetheless sought to strike an optimistic tone before Monday's negotiations, saying on Friday that talks with Beijing were 'very far advanced." He had described a phone call with Xi on Thursday as 'very good" and said 'there should no longer be any questions respecting the complexity of rare-earth products." The White House didn't give details as to what Xi said about rare earths, and Beijing has continued to urge the Trump administration to remove its trade restrictions on China.
In a goodwill gesture, China's Ministry of Commerce said Saturday it has approved a number of export licenses for rare-earth-related products, citing rising global demand driven by such industries as robotics and new-energy vehicles.
'Up until the phone call, both sides were spiraling toward uncontrolled supply-chain warfare," said Jimmy Goodrich, a China and technology expert and senior adviser to Rand. 'I think the administration played this card to get China to re-engage and back off the magnet restrictions"
For Beijing, the addition of Commerce Secretary Howard Lutnick to the American negotiating team is a welcome signal. The inclusion of Lutnick, the cabinet member who oversees export controls, suggests that Trump is willing to put the topic on the table for discussion with the Chinese delegation, led by Vice Premier He Lifeng, a trusted Xi aide.
America's negotiators are led by Treasury Secretary Scott Bessent and include U.S. Trade Representative Jamieson Greer, who sat opposite Beijing's bargainers during Trump's first-term trade war with China as part of the team of his predecessor, Robert Lighthizer.
Senior Chinese officials in the past few years have often complained about not having an effective channel of communication with Washington—whether during the Biden administration or the current one—over export controls, an issue Beijing sees as essential to its technological and industrial ambitions.
Most recently, according to people familiar with the matter, a senior member of He's negotiating team, Li Chenggang, again raised the issue with Greer when the two met in May on the sidelines of a multilateral meeting in South Korea.
At the center of the recent flare-up in tensions is what the Trump administration has said is China's violation of the Geneva agreement. During the talks there, He removed a final sticking point by agreeing to U.S. demands that China resume rare-earth exports. Yet since then, Beijing has dug in its heels, slow-walking approvals of licenses to export the minerals critical in manufacturing modern cars, chips, F-35 jet fighters and other products.
China has blamed the U.S. for the breakdown, seeing a warning against the use of some artificial-intelligence chips from China's Huawei Technologies as a renewal of U.S. aggression, and complained to Washington that it undermined the trade deal.
American negotiators explained to their Chinese counterparts that the warning was a restatement of U.S. policy, The Wall Street Journal has reported. Privately, even some administration officials were taken aback by the warning, according to people close to the White House.
Officials at the Treasury Department and the Office of the U.S. Trade Representative, the people said, were upset by the Huawei warning, put out by the Commerce Department's Bureau of Industry and Security, which oversees export controls. The bureau didn't go through the regular interagency process before issuing the notice, the people said.
Then, in response to Beijing's slow-rolling rare-earth approvals, the bureau sent out letters and notices to companies in a variety of industries, informing them that their existing licenses to sell to China were being suspended or revoked, according to people familiar with the matter. The moves haven't been publicly announced by the Commerce Department.
The products covered by the Commerce Department's letters or notices, the people said, include jet engines and related parts, which China needs to make its own commercial aircraft; software required by Chinese companies to produce chips; and ethane, a component of natural gas important in manufacturing plastics.
Beijing sees these new restrictions, along with the State Department's recent announcement that it would revoke visas for Chinese students, as examples of Trump's dialing up pressure to try to extract concessions from China. The administration hasn't disclosed the motives and objectives of those moves, raising questions of whether they can be traded away for any compromises from China, including the loosening of Beijing's grip over rare-earth and other critical minerals.
Some analysts point out that it would be hard for the administration to walk back measures specifically aimed at protecting national security—the traditional purpose of export controls. These analysts said export controls historically haven't been used as leverage for trade negotiations.
Lutnick, during a House hearing Thursday, actually called for stepped-up enforcement of export controls to prevent China from accessing critical American tech that could help advance its ambitions in such strategic sectors as AI and aviation.
'They are trying to copy our technology," Lutnick said. 'In the race for AI supremacy, they are behind us, but they are working with the central government to get us, right, to beat us so that they will have intellectual superiority over us."
Write to Lingling Wei at [e-mail] and Gavin Bade at [e-mail]