Top US and Chinese officials met in Malaysia on Saturday to set the stage for a summit between Donald Trump and Xi Jinping, with some on Wall Street saying Beijing had gone overboard in imposing draconian restrictions on rare earth exports.
Treasury Secretary Scott Bessent and Chinese Vice Premier He Lifeng held negotiations that the United States described as constructive. But sources told the Financial Times China was reluctant to relax export controls.
If Beijing refuses to budge and negotiations between Trump and Xi on Thursday fail to produce a deal to abolish export controls, U.S. tariffs on China would rise to 157%. Furthermore, other countries may increasingly side with Washington, overcoming previous backlash against the United States over Trump’s global tariffs.
“While Chinese leader Xi Jinping remains firm on implementing tough export controls on rare earths and other critical minerals, there are growing signs that Asia’s largest economy has gone too far this time,” Yardeni Research said in a note Tuesday.
For example, European and Japanese officials have joined the United States in denouncing export controls imposed by China, which could curb the supply of critical materials to a wide range of industries.
The negative response to Beijing’s tactics also prompted the G7 to commit to a united front against export controls, Yardeni noted.
The often unilateral Trump administration has spotted an opportunity to flip the script and even discovered a taste for multilateralism, with Bessent recently saying he would meet with Australia, Canada, India and Asian democracies to formulate a collective response.
For its part, China has slammed U.S. efforts to limit exports of software and chips, while redirecting trade to other countries to offset falling exports to America.
“Still, Xi’s latest trade war tactic could tip the geostrategic balance toward the United States, as companies around the world think it is better to do business in China in general,” Yardeni said.
Meanwhile, the United States is working to develop alternative sources of rare earths and is turning to allies like Australia, although new supplies could take years to come to market.
Trump also has formidable trade weapons to deploy against China in case he seeks to escalate US retaliation.
But he has indicated he prefers to reach a deal and has recently softened his tone, saying last week that he “is not looking to destroy China” after warning that he might.
And as he spoke to reporters aboard Air Force One en route to Malaysia, Trump was open to compromise.
“Of course they will have to make concessions. I guess we will too,” he said. “We’re imposing 157% tariffs on them. I don’t think it’s sustainable for them. They want to reduce that amount and we expect certain things from them.”
