Tensions between the United States and China escalated following a meaningful drop in China’s rare earth exports, despite a trade truce agreed upon in Geneva in May. This led to the implementation of “countermeasures” by the Trump management, including export controls on chip software, ethane, and jet engines. The dispute was only resolved after a meeting in London, where China agreed to resume rare earth exports and the U.S. lifted it’s restrictions on chip software.
China has as recognized the strategic advantage of its leverage, which extends beyond rare earths to critical supply chains such as drones and electric vehicle batteries, areas where China holds a dominant position. The potential divestment of TikTok’s U.S. operations from its Chinese owner,bytedance,which requires beijing’s approval,is also seen as a significant bargaining chip.
An analyst suggested that China, which previously did not actively utilize these leverage points, is now likely to proactively consider employing them.
In related developments, a U.S.official indicated an intention to address China’s continued purchases of sanctioned oil from Russia and Iran,and also its support for Russia’s actions in Ukraine. The Trump administration had previously threatened a 100% secondary tariff on goods from countries,including China and India,that continued to buy Russian oil,a proposal that was gaining legislative traction.
Analysts believe China is unlikely to cease its oil imports from Russia or Iran in response to tariff threats.However, Beijing is reportedly aware that the U.S. might use these threats as leverage to secure Chinese cooperation on issues such as the conflict in Ukraine and negotiations with Iran.
