A fresh battle of words and policies broke out between China and the US on Tuesday, as each side resorted to a mix of defensive and belligerent rhetoric to paint itself as a saint in the ongoing trade war — and the adversary as a sinner.
US treasury secretary Scott Bessent accused China of seeking to “pull everybody else down with them” by damaging the global economy. Almost immediately, in an apparently pre-planned statement, China’s commerce ministry accused the US of intimidation, pledging that the country would “fight to the end” in trade competition.
The slanging match raises fears around the world that the world’s two superpowers will continue to scratch at each other, rather than do what would help global trade and settle down and make a deal.
Daniel Yergin, vice-chair of S&P Global, said the strife was part of “the unravelling of nine decades of moving towards open trade, eight decades of movement towards alliances and relationships, and... the end of a three-and-a-half-decade period of what’s called the Second Age of Globalisation.”
The trade brawl, which began in earnest when Donald Trump became US president in 2016, kicked off again on October 9 when China slapped wide new restrictions on exports of rare earth elements. Trump threatened an additional 100% tariff on Chinese imports. Both parties hiked port fees on the other’s cargo ships and China sanctioned the US subsidiaries of a South Korean shipping firm — part of a dispute over global maritime dominance.
The big question is whether the two can reach a compromise without losing face. Behind the scenes, both administrations are quietly seeking to de-escalate.
Beijing has quelled criticism of the US in its state media and is eager for Trump and President Xi Jinping to meet at the Asia-Pacific Economic Cooperation forum in South Korea on October 31. Trump wants to soothe markets and focus global attention on the Gaza ceasefire deal.
Smiles and snarls
The world has faced this threat before, notably after Trump’s April 2 tariff barrage. In May, the US and China reached a deal: the US cut tariffs on Chinese goods to 30%, Beijing reciprocated with 10%.
But even if a compromise is reached at the end of this month, it will not be the end of the matter. Smiles will soon turn to snarls. This wrangling is now part of the geopolitical reality, something corporate chiefs, fund managers and analysts instinctively factor into business plans and earnings forecasts.
Many around the world are hoping both sides can climb down. Trump has been an avid advocate of tariffs since the 1980s, making it hard to see him changing. “I do think they are going to raise tariffs on China,” said Anne Stevenson-Yang, managing principal at US-based equity research firm J Capital Research.
Beijing has shown no intention of tempering its position on rare earths, probably its most powerful bargaining chip. Its stranglehold on them strikes fear into America’s military apparatus (see separate story).
Yergin drew a clear contrast. When last week’s crisis broke, he was in Beijing and noticed a “sense of calm. They were prepared. They were ready for it.”
The US, meanwhile, was waking up to China controlling critical minerals. “If you were here [in Washington] on Thursday or Friday, there was a real sense of crisis about it,” said Yergin. “You hear the CEO of a major automobile company say ‘we’re going to run out in a week and a half. Can we please do something?’ You know this is a serious situation.”
Anna Rosenberg, head of geopolitics at the Amundi Investment Institute, said China’s control over rare earths showed its clout. “This leverage increases the risks over Taiwan,” she said. “I do not expect a military escalation here, but nevertheless, the risk of a political takeover is clearly increasing.”
De-escalation in the balance
Neither side wants to get stuck in a cycle of grim-faced appeasement and renewed recrimination. Trump’s team know any attempt to hike tariffs on China to eye-watering levels will merely cause unpopular inflation at home.
Beijing has enough on its plate, too: rising social tensions, youth unemployment and a moribund property sector are a huge drag on growth. Yet it cannot refrain from retaliating when hit by US sanctions and tariffs. “Xi Jinping and China’s domestic politics will not allow that to happen without resistance,” says Yunnan Chen, a research fellow at ODI Global, a thinktank in London.
Dean Woodley Ball, senior fellow at the Foundation for American Innovation, said
China was willing to control exports of anything made with Chinese rare earth metals, anywhere in the world.
“This is profoundly broader than any export control regime of recent vintage created by the United States or any other country,” he said. “However, the shift depends on the extent of enforcement, which in the early days I expect to be modest. Still, it is a major warning shot every country in the world should hear, internalise and react to. I am hopeful that this process is under way.”
But some analysts are pessimistic. “I don’t see a lot of cool heads prevailing,” said Emily Kilcrease, director of the Energy, Economics and Security Program at the Center for a New American Security.
She said the best case scenario was a return to the rocky relationship of previous years. “There’s no grand bargain to be struck,” she said. “The two economic systems are so opposed to each other. China has shown no intention to move away from its export-driven growth model, which is a large part of what has led to this tension.”
Chen wondered: “Who is losing more from this trade war? Everyone is hurting to some extent.”