Reasons Behind the US-China Trade War Truce Starting to Fray

Reasons Behind the US-China Trade War Truce Starting to Fray

This article is not intended as investment advice. The author does not hold any positions in the stocks discussed.

Current State of US-China Trade Relations

Since President Trump announced reciprocal tariffs on nearly all US trade partners on April 2, 2025, market tensions have intensified. This period of uncertainty escalated until May 12, when the US and China reached a temporary agreement to ease the tension of a trade war. During those crucial weeks, fears of a recession loomed large, and volatility marked the trading environment as the US-China trade conflict faded from the immediate spotlight—until recent developments reignited concerns.

Understanding the Geneva Agreement

For context, the significant agreement reached during meetings in Geneva on May 10 and 11 stipulated a mutual reduction of import tariffs by 115 percent for a duration of 90 days. China decreased its tariffs on US goods from 125 percent to 10 percent, while the US rebated its tariffs on Chinese products from 145 percent to 30 percent. Notably, imports from China valued under $800 still faced a hefty 54 percent tariff in the US.

Recent Developments in Trade Relations

However, recent events indicate that this fragile truce may be unraveling. The US government has taken decisive actions against select American companies, limiting their ability to provide chip design software to Chinese firms. In a striking move, Secretary of State Marco Rubio announced plans to revoke visas for Chinese students, particularly those associated with the Chinese Communist Party (CCP).Furthermore, the US Commerce Department has suspended export licenses essential for supplying engine components and technologies to China’s state-owned aircraft producer, COMAC. The US is also considering blacklisting subsidiaries of certain Chinese firms already on the Entity List, compounding the strain.

In a forceful post on Truth Social, President Trump criticized China’s actions, claiming that the nation had “totally violated its agreement” with the United States.

The Role of Rare Earth Minerals

Why is the US suddenly intensifying its approach to China from multiple angles? According to reports from the Wall Street Journal, the crux of the issue lies in China’s reluctance to resume exports of rare earth minerals to the US. During the Geneva discussions, the US urged China to expedite the process of exporting these essential materials. Unfortunately, Beijing’s ongoing tactics to delay the approval of export licenses for US companies have only exacerbated tensions.

This situation has dire implications for US manufacturers, particularly in the automotive sector, where some factories may face production slowdowns or restrictions. Rare earth metals are critical components in various industries, especially in the manufacturing of magnets for electric motors.

The Path Forward for US Rare Earth Processing

It is essential to consider that revamping the US rare earth processing industry is a long-term venture. While the US is home to significant rare earth deposits, establishing a fully operational and efficient refining process will require substantial investment, energy resources, and a coordinated supply chain. Experts suggest that even with an expedited effort, it could take around a decade before the US can effectively streamline its own rare earth sector.

For continuous updates on this matter, refer to this source for more insights and information.

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