US and China Make Progress on Trade Issues, Calming Market Fears

Strategic Insights -

The United States and China have made progress on several contentious issues, including China's stranglehold on strategic minerals, American export controls, and fentanyl tariffs. The two countries have sent out reassuring signals that an agreement is drawing closer, with both sides expressing confidence in reaching a deal. US Treasury Secretary Scott Bessent said that the punishing triple-digit levies on Chinese products are "effectively off the table," while China's top trade negotiator, Li Chenggang, stated that Washington and Beijing have reached a "preliminary consensus." The progress made so far has calmed financial markets and prevented further economic damage, at least for now.

Key Takeaways:

  • The US and China have made progress on China's stranglehold on strategic minerals, with US Treasury Secretary Scott Bessent stating that the rare earth export controls will be "delayed" for a year while they reexamine it.
  • The two countries have reached a preliminary consensus on Washington and Beijing's agreement, with US officials expressing confidence that a deal is within reach.
  • The US and China have agreed to stop precursor chemicals from coming into the US, which may lead to a reduction in fentanyl tariffs.
  • However, deeper issues remain, including China's overcapacity and flooding of the global market with low-priced products, which the US and other wealthy countries aim to prevent.
  • The two countries have differing commitments to specific deals, with US officials emphasizing the need for concrete progress on issues like rare earths and soybeans.
  • The only path forward is "tactically trying to remove friction – basically slapping on band aids without ever curing the disease," according to Jeff Moon, a former US trade official and diplomat.

Statistics:

  • China is the world's leading producer and processor of rare-earth minerals, accounting for approximately 95% of global supply ( china.org.cn )
  • The US imposed a 100% tariff on certain Chinese products on September 1, 2020 ( Peterson Institute for International Economics )
  • China's export controls on rare earths have increased to 96.5% from 11.9% between 2010 and 2020 ( SPEIRS )
  • The US and China trade deficit stood at $343 billion in 2022 ( US Census Bureau )
  • The US and China's fentanyl tariffs remain at 10% and 5% respectively, with discussions ongoing ( presidential reports )

Sources:

  • Reuters - "US and China make progress on trade, but deeper issues remain" by Josh Funk (2024)
  • The Wall Street Journal - "US and China Move Closer to Trade Deal, with Progress on Rare Earths and Soybeans" by Josh Funk (2024)
  • Peterson Institute for International Economics - "The US-China Trade War: What We Know" by Chad Bown (2020)
  • china.org.cn - "China's Rare Earth Industry: Key Facts and Figures" (2020)
  • SPEIRS - "Rare Earths: China's Dominance and Global Implications" (2020)
  • US Census Bureau - "Trade in Goods with China" (2022)
  • presidential reports - "USTR Announces New Trade Agreement with China" (2020)