Lutnick Declares, “We Won’t Share Our Best Chips with China,” Admits China’s Stance on Fentanyl Precursors Remains Unchanged

Lutnick Declares, “We Won’t Share Our Best Chips with China,” Admits China’s Stance on Fentanyl Precursors Remains Unchanged

This article does not serve as investment advice. The author holds no positions in the stocks discussed herein.

Recent Developments in US-China Trade Relations

Following the framework agreement finalized in London on Tuesday, fresh details are emerging, indicating compromises made by the United States regarding silicon chip restrictions. In exchange, China may offer processed rare earth metals and magnets as part of the negotiations. This represents a significant shift in the dynamics of trade between the two countries.

Impact of China’s Export Restrictions

Earlier this year, there were indications that China’s restrictions on exporting processed rare earth metals were causing substantial upheaval, particularly affecting the US automotive industry. Reports suggested that some auto manufacturers were on the verge of scaling back or even halting operations due to these supply chain disruptions.

Understanding Rare Earth Metals

Rare earth metals are critical components across various sectors, notably in producing magnets for electric motors. China has established a near-monopolistic hold over the global supply chain for processed rare earth metals. While the US possesses abundant deposits of raw materials, the processing necessitates considerable investment in logistics, energy resources, and an integrated supply chain, making it a long-term endeavor to develop.

Context of Recent Negotiations

Prior to the London meeting, the US had enforced a stringent ban on the use of Huawei chips outside of China, alongside various restrictions on American companies engaged in chip design. Additionally, there were threats to revoke visas for Chinese students with affiliations to the Chinese Communist Party (CCP) and the suspension of export licenses for critical technologies supplied to China’s COMAC, a state-owned aircraft manufacturer. Meanwhile, China was reportedly delaying the approval of export licenses for processed rare earths, prompting the need for dialogue.

Tariff Adjustments and Economic Implications

According to recent remarks from President Trump and Secretary Lutnick, the US will maintain a 55% tariff on all imports from China, while China agreed to reduce its tariffs on American goods to 10%.This arrangement stems from the discussions in London.

After the US-China meeting held in Geneva on May 10th and 11th, both parties had tentatively agreed to lower tariffs on each other’s goods significantly for 90 days. China had originally reduced its tariffs on US imports from 125% to 10%, whereas the US lowered its tariffs on Chinese imports from 145% to 30%.However, items under $800 imported from China still faced a hefty 54% levy.

Further Insights from Officials

Lutnick reiterated on CNBC that the US is steadfast in not providing China access to its most advanced technologies. In light of ongoing discussions, Kevin Hassett, the Director of the National Economic Council (NEC), suggested that the administration might consider relaxing some chip export controls as part of a larger trade agreement. However, he specified that restrictions on NVIDIA’s GPU designed for the Chinese market, known as the H20, would remain intact.

Classifications and Conclusions

The most recent talks suggest that China is willing to ease its grip on the export of processed rare earths in exchange for an increase in American student visas for Chinese nationals.

According to Lutnick, an influx of rare earth metals from China to the US is anticipated to follow the lifting of the aforementioned American countermeasures. However, it should be noted that Chinese President Xi still needs to authorize this framework agreement.

It is also crucial to highlight that China has not shown any willingness to negotiate the issue of fentanyl precursors, with officials declaring this matter as “off the table.”This is a significant aspect, given that China supplies many of the ingredients used to manufacture fentanyl, a synthetic opioid that is approximately 50 times more potent than heroin.

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