Has Trump already lost his tariff-trade war with China?

In all likelihood, US President Donald Trump has already lost the trade war with China.

Even as Trump tried to leverage the US market size and China’s access to Western critical technology, China appears to have had the last laugh as it has forced him to rollback export controls on semiconductors technology and ethane products.

China’s trump card turned out to be rare earths that are used in nearly everything that is part of modern life, ranging from household electronics to cars and missiles and fighter planes. China controls around 70 per cent of rare earths mining and around 90 per cent of production of refined rare earths.

Trump rolls back export controls as China flexes muscles

Trump last week revoked restrictions on the export of semiconductor technology, such as electronic design automation (EDA) software, to China, as part of an arrangement with China to secure China’s rare earth supplies.

After Trump declared his trade war, China halted the export of rare earths. The blockage has now forced Trump to buckle and roll back export controls.

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Trump also rolled back export controls on ethane products’ supply to China.

It was not unforeseen though. There were warnings from the beginning that Trump’s tariff-led approach was bound to fail in the face of China’s rare earths leverage.

“The answer cannot be for President Trump to issue a tariff. We need to be competitive with or without tariffs by increasing our technology, improving our processes, using more robotics. But we must have a legitimate business at the end of the day,” Mark Smith, the CEO of rare earths firm NioCorp, told Time.

The road to counter China’s rare earths dominance is long

Considering China spent decades to master the processes to extract and refine rare earths, and spent considerable resources in acquiring rare earth reserves and refining rights abroad, it is natural that any effort to counter its monopoly is going to take years if not decades and substantial state support.

Whether Trump has it in him to start a systematic process to regain the lead that the United States once had in rare earths is yet to be seen.

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In addition to dominance in refining, China is further helped by the fact that it has the largest rare earths reserves in the world.

To be sure, there are plans in the United States to revive the Mountain Pass mine in California. Another mining operation is in the works in Wyoming.

Australia and Malaysia have rare earths reserves too and various countries, including the United States, are exploring alternatives like them and figuring out ways to securing supplies from these new sources. However, it is expected to take years for these alternatives to scale up to be able to challenge China’s dominance.

Developing rare earths’ mining and processing capabilities requires a long-term effort, meaning the United States will be on the back foot for the foreseeable future, noted Gracelin Baskaran and Meredith Schwartz of the Critical Minerals Security Program at the Center for Strategic and International Studies (CSIS) in an analysis carried by AFP.

That means that China has a “strong negotiation position” for the foreseeable future as China can hold foreign countries’ industries hostage by stopping rare earths’ supplies at will.

“Mineable concentrations are less common than for most other mineral commodities, making extraction more costly. It is this complex and costly extraction and processing that make rare earths strategically significant. This gives China a strong negotiating position,” noted Rico Luman and Ewa Manthey of ING in an analysis carried by AFP.