On Wednesday, the United States and China reached a preliminary agreement to reactivate their trade truce for a period of six months. The two-day commercial negotiations held in London concluded with a framework aimed at implementing the Geneva consensus , allowing the U.S. to establish new tariffs while China relaxes its export licenses on rare earth elements.
Background: On May 10, the U.S. and China convened in Geneva for their first meeting aimed at negotiating reciprocal tariffs. Just two days later, an agreement was made to de-escalate tensions: the U.S. reduced tariffs on Chinese exports from 145% to 30% , while China set a 10% tariff on U.S. imports.
However, there were no changes regarding the most sensitive measure: China’s export restriction on rare earth elements, imposed after the initial tariff announcements by the U.S. Since then, the back and forth of measures and countermeasures has continued unabated.
What’s New: Following new rounds of discussions at Lancaster House in London, both countries have reached a new agreement to reduce trade tensions. The U.S. proposes a 55% tariff on the import of Chinese products, the admission of Chinese students into its universities, and relaxed export controls on products such as jet engines and ethane—key raw materials for the petrochemical industry .
China, on the other hand, retains a 10% tariff on U.S. imports while easing license concessions for six months on exports of the materials critical for the operation of much of the global industry: rare earth elements.
This is not a win for the U.S. The temporary relaxation of rare earth exports by China is not a sign of commercial weakness; rather, it is indicative of strength . Under the leadership of Xi Jinping , China maintains significant control over the extraction and processing of rare earth elements, which are essential for various high-tech applications.
This agreement demonstrates that whenever China is willing to negotiate, it can simply open or close the valve . These materials are vital not just for trade but are critical components in strategic sectors such as electric vehicle manufacturing, defense, computing, and chemistry. If the U.S. tightens its stance, China can retaliate by restricting export licenses.
It won’t be free: According to sources from Financial Times , the concession of rare earth licenses will be subject to strict export controls. This includes the requirement for commercial information to be exchanged as a condition for supply.
The Ministry of Commerce is reportedly demanding detailed information about production processes as part of its approval process. Specific data about operations, personnel, end-use applications, production information, product images, or facility details are among the requirements China is imposing on its clients, according to Frank Eckard , CEO of Magnosphere , a German manufacturer of magnets.
Implications: The restrictions on rare earth export licenses were beginning to stifle certain industries. In the U.S., companies such as Ford had to halt part of their production, and they weren’t the only ones affected. The implications are global, as supply chains are interlinked; for instance, Suzuki in Japan had to stop production of its Swift model, and concerns about the future of data centers were left hanging in the air.
On the U.S. side, it is especially noteworthy that the leverage being used includes the admission of Chinese students into American universities. China is the world’s leading producer of STEM students, with 38% of AI experts in the U.S. hailing from there. The increased tariff of 55% remains a demonstration of the tension and commercial power play, a figure constantly in flux as both parties grapple for dominance.
Image: Lio Voo
As experts have noted, the ongoing developments suggest that the technological growth of China is not something the U.S. will be able to easily contain, highlighting the complexities embedded in international commercial relations today.