China and the U.S. just hit a huge milestone. In doing so, they have come to an agreement in principle on a framework to settle long-standing trade disputes among each other, marking a possible thaw in their otherwise antagonistic history to date. The signed agreement came after months of high-level discussions. Perhaps most significantly, was a recent high-level phone call between Chinese leader Xi Jinping and US President Donald Trump. Unlike many alternative approaches, this framework is not adversarial and instead aims to facilitate constructive negotiations. It addresses critical concerns such as rare earths exports and access to emerging technology.
That was after China, the world’s leading producer of rare earth elements, slapped major export restrictions on these critical materials in April. Global automakers and technology manufacturers have serious alarm with these restrictions. For most of their critical applications they are critically dependent on rare earths. So the Chinese government has been suggesting lately that they’re considering easing their restrictions on exports. This change would have serious consequences for global supply chains.
With the discussions in Geneva, we saw a huge breakthrough. In return, both countries agreed to suspend most of the tariffs they had placed on each other for a period of 90 days. In the midst of these negotiations, the two countries agreed that their respective understanding of what a trade agreement should be was essentially incompatible. Both sides continue to be dedicated to continued discussions in search of a mutually acceptable resolution, with further discussions expected in London.
Continued Negotiations
At the heart of these negotiations is China’s vice minister of commerce and international trade representative, Li Chenggang. His job will be to enforce the trade framework recently negotiated by the two countries’ presidents. It is our aspiration that our framework will spur these kinds of healthy conversations with respect to greater market access. It will strengthen cooperation around sharing technologies.
The Chinese government is keen for the US to lift restrictions. They argue that onerous limitations on technology access for the manufacturing of leading-edge semiconductors must be removed. This request is an important and symbolic piece of the larger negotiations, as both countries look to strengthen economic cooperation.
“If we don’t open up China, maybe we won’t do anything,” – Donald Trump
Trump’s statements seem to communicate an urgency to address these non tariff trade barriers. The US administration is keen on having China open its market to American products, which would potentially balance trade relations and foster economic growth on both sides.
Implications for Global Markets
The potential easing of export restrictions on rare earth elements is particularly significant given China’s dominant role in their production. Rare earths are critical components in many industries, such as automotive and electronics. Automakers are understandably concerned with the practical operational impacts of these brand new restrictions. Likewise, they call out the severe demand for a consistent supply chain.
If these negotiations don’t conclude successfully, China might decide against further opening its market to US products. This uncertainty is a dark cloud over these talks, as both countries battle difficult domestic economic conditions and intense competition from third party global markets.
“But we want to open up China.” – Donald Trump
The promise from both sides to return to talks shows that both parties are willing to tackle deep-seated problems. Their fate will depend on the outcome of these negotiations, which will be pivotal. It will determine the new rules of trade between the world’s two largest economies.
Future Outlook
With China and the US still in the midst of intense trade negotiations, the stakes couldn’t be higher. The way forward now lies in the readiness of each nation to negotiate and make concessions to each other in search of solutions that benefit all. Our global markets are closely attuned. Both countries understand that their policy choices will have profound implications not only for their own economies but for the future of global trade.
