 "How US-China trade talks are a techno-economic chess match")
On the surface, the latest US–China trade negotiations unfolding in London may appear to be just another chapter in a long saga of tariff wars and retaliatory measures. But beneath the rhetoric lies a deeper story. One defined by a high-stakes bargaining game between asymmetric dependencies. China’s dominance in rare earth processing and the US’s gatekeeping of advanced semiconductor technology. What is unfolding is not a reset of trade relations but a recalibration of techno-economic power.
China controls approximately 90 per cent of global rare earth processing, and over 69 per cent of rare earth mining, including critical inputs such as neodymium, samarium, and dysprosium. These elements are indispensable in manufacturing electric motors, missile guidance systems, wind turbines, and mobile phones. In April 2025, Beijing implemented a new license-based export regime on seven rare earths and associated magnets, requiring documentation of end-use and transaction-level scrutiny. The impact was immediate. Rare earth exports to the U.S. dropped by 72.4 per cent year-on-year in May, following a 55.2 per cent drop in April.
Meanwhile, the U.S. has imposed sweeping export controls on AI-relevant semiconductors, chip-design software, and lithography technologies. Semiconductor exports to China fell from $980 million in January to $410 million in May, a 52.1 per cent contraction year-on-year, throttling China’s access to chips critical for everything from EVs to surveillance tech. In parallel, export bans on industrial gases like ethane and butane, used in chip fabrication, and visa restrictions for Chinese researchers reflect a deliberate techno-containment strategy.
A 90-day truce negotiated in Geneva on May 12 temporarily reduced U.S. tariffs from 145 per cent to 30 per cent and China’s from 125 per cent to 10 per cent, but it has proven fragile. Since then, both parties have accused each other of breaching the agreement. The US argues that China is “slow-walking” rare earth approvals, while Beijing claims that continued restrictions on chip software and Huawei-related products amount to “serious violations” of the truce.
Impact Shorts
More ShortsThe reality is that while tariffs have been dialled down, non-tariff barriers have escalated. There has been a shift from overt economic coercion to surgical economic warfare. The question is no longer who blinked first, but whether either side believes economic interdependence remains tenable.
The real economy is showing signs of stress. In the US, a Ford factory in Chicago was temporarily shut down in May due to magnet shortages. Semiconductor-reliant manufacturing output declined 1.2 per cent month-on-month in May, and auto exports from Michigan to Canada have collapsed, falling from a baseline of 75,000 units/month in Q1 to just 14,500 in May, a mere 18.6 per cent of the 2024 monthly average.
China, meanwhile, is contending with its own domestic pain. Despite a headline 4.8 per cent year-on-year increase in exports in May, shipments to the US dropped 34.5 per cent, worsening from -21.0 per cent in April. Deflationary pressures are intensifying. PPI fell 3.3 per cent year-on-year and CPI dropped 0.1 per cent, reflecting weakening domestic demand. These macro signals point to a deeply destabilized global value chain.
The premise that tariffs are leverage is being tested. The so-called “Liberation Day” tariffs announced in April have been declared illegal by a US court, potentially invalidating a cornerstone of Trump’s trade doctrine. Moreover, markets have priced in the predictability of retreat, the now-infamous “TACO trade” (Trump Always Chickens Out) reflects investor belief that the most extreme measures will be dialled back after equity losses mount.
Bond markets are jittery. The latest $58 billion three-year Treasury auction is being closely watched amidst fears of a fiscal blowout from the administration’s tax-and-spending megabill. Simultaneously, Trump is pressuring the Federal Reserve for rate cuts to blunt the economic fallout from his own tariff escalations, a fiscal-monetary contradiction that indicates towards the fragility of the US negotiating hand.
Despite Commerce Secretary Howard Lutnick and Treasury Secretary Scott Bessent projecting optimism from Lancaster House, few expect a comprehensive agreement. The US has indicated willingness to ease controls on mid-tier chips, but refuses to budge on high-performance AI GPUs like NVIDIA’s H100s, citing national security. China has responded with temporary six-month licenses for some US automakers’ suppliers, but these piecemeal concessions are tactical, not structural.
Meanwhile, both sides are racing to derisk. The US has revived domestic rare earth projects in California and partnered with Australian and Indian firms. China is investing heavily in chip equipment startups and ramping domestic EDA software development. The OECD has downgraded global growth projections to 2.9 per cent, attributing the fall primarily to rising trade barriers and investment uncertainty.
Regardless of the outcome of the London talks, a paradigm shift is evident. Trade is no longer conceived as a channel for cooperation, but as a weapon of deterrence. Critical minerals and chips have become instruments of statecraft. The deglobalisation that once seemed a risk is now policy.
As the July 9 deadline for new global tariffs looms, a bifurcated world economy is taking shape. The US and China may continue to trade, but the logic of that trade is now governed by mistrust and resilience-building, not efficiency or growth.
We are witnessing the emergence of a post-WTO era, one where the balance of power is measured not in GDP, but in graphene transistors and neodymium magnets. Strategic autonomy is no longer rhetoric. It is the architecture of the new global economic order.
Aditya Sinha (x:@adityasinha004) writes on macroeconomic and geopolitical issues. Views expressed in the above piece are personal and solely that of the author. They do not necessarily reflect Firstpost’s views.
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