U.S. and Chinese officials face off over export controls and Trump’s tariff threats in Malaysia
Author: Rozana Latif and David Lauder
KUALA LUMPUR/WASHINGTON (Reuters) – Top economic officials from the United States and China will arrive in Kuala Lumpur on Friday for talks to prevent an escalation of the trade war and keep next week’s meeting between U.S. President Donald Trump and Chinese President Xi Jinping on track.
U.S. Treasury Secretary Scott Bessant and U.S. Trade Representative Jamieson Greer will meet with Chinese Vice Premier He Lifeng to find a way forward after Trump threatened to impose new 100% tariffs and other trade restrictions on Chinese goods starting November 1 in retaliation for China’s dramatic expansion of export controls on rare earth magnets and minerals.
The talks, which will begin on the sidelines of the Association of Southeast Asian Nations summit in the Malaysian capital on Saturday, are the fifth between Ho, Bessant and Greer since May and shift the venue from European cities to Asia’s top exporters, which rely on China and the United States.
Rare earth bondage
The focus of the talks is again on China’s control of global supplies of rare earth minerals and magnets necessary for high-tech manufacturing, which Beijing has used as an effective leverage point against Washington.
In April, Trump imposed new tariffs on Chinese imports, which quickly escalated to triple digits. Beijing cut off supplies of rare earths to U.S. buyers, a move that threatened U.S. production of electric vehicles, semiconductors and weapons systems.
Bessant and Greer met He Jiankui for the first time in Geneva in May this year and reached a 90-day truce, significantly reducing US tariffs to about 55% and Chinese tariffs to about 10%, and restarting the circulation of magnets. The terms were refined in London and Stockholm, and talks in Madrid in September resulted in a deal to transfer ownership control of Chinese short-video app TikTok to the United States.
But two weeks later, the delicate truce broke down, and the U.S. Commerce Department significantly expanded the U.S. export blacklist, automatically including companies with more than 50% stake in companies already on the list, and banning U.S. exports to thousands of Chinese companies.
China implemented new global rare earth export controls on October 10, requiring products that use Chinese rare earths or rare earth refining, extraction or processing technology developed by Chinese companies to obtain export licenses to prevent their use in military systems.
Bessant and Greer condemned China’s move as a “global supply chain power grab” and vowed that the United States and its allies would not accept the restrictions. Reuters reports that the Trump administration is considering a plan to up the ante by restricting exports to China of a dizzying array of software-driven products, from laptops to jet engines, according to people familiar with the matter.
Step back from the brink
But analysts say their challenge in Kuala Lumpur is to negotiate a return to the previous status quo to keep magnets flowing and avoid a sharp increase in U.S. tariffs. If it fails, the meeting between Trump and Xi Jinping in South Korea next Thursday during the Asia-Pacific Economic Cooperation Summit may be cancelled.
“Ultimately, I’m optimistic that at this particular meeting there will be a tactical decision to extend the pause in some way,” said Dennis Wilder, senior fellow at Georgetown University’s U.S.-China Dialogue Initiative on Global Issues.
“Trump is not going to do 100 percent tariffs. The Chinese are going to give up a little bit on the idea that rare earths are not going to be exported to the defense sector around the world,” Wilder told an online forum hosted by the Center for Strategic and International Studies.
The U.S. is also likely to pressure Beijing to resume purchases of U.S. soybeans after China stopped buying them in September, causing economic pain to farmers, a key political constituency for Trump.
But the talks are unlikely to delve into core U.S. complaints about China’s export-driven economic model that first prompted Trump to impose tariffs, including a long-sought rebalancing of China’s economy to increase consumption and reduce excess production capacity.
“We can’t do that because we have to ask them to buy soybeans, right?” said Philip Luck, director of the Economics Program at the Center for Strategic and International Studies. “That’s not the core issue.”
(Reporting by David Lauder and Rozana Latif)
