US-China trade war’s shift to export controls is music to Beijing’s ears

Two days of talks in London between the United States and China have underlined that tariffs are no longer necessarily the primary theatre of operation in the trade war. The action has now shifted to the far more difficult issue of export controls, primarily on rare earth exports from China and technology exports from the US. That’s good news for China. Although details are lacking, the London negotiations resulted in a framework that purports to make at least some progress on the nettlesome export restrictions. The amorphous nature of export controls will provide ample room for obfuscation and backsliding. The London meetings were precipitated by rising consternation on both sides over export restrictions that threatened the tentative trade truce agreed last month in Geneva. China failed to loosen its grip on the export of rare earth materials needed for a wide range of advanced manufacturing, breeding nervousness in the US over the prospect of factory closures and diminished defence capabilities. The US, for its part, has continued to ratchet up restrictions on China’s access to the technologies central to China’s ambition to be a global AI leader. This intensifies China’s apprehension over what it sees as US determination to block its rise. The trade war will rumble on in spite of the framework agreed in London, and as it does, export restrictions will be an increasingly important pressure point each side will try to leverage. Although export controls can take various forms, including outright bans, a more common approach is to institute a licensing system, which requires explicit approval for cross-border shipments of the product in question. Licensing regimes create considerable wiggle room, which can lead to manipulation. Tremendous discretion is left in the hands of government bureaucrats taking direction from their political masters. Precise criteria and required supporting documentation can be left ambiguous, and requests for additional information – sometimes beyond what is officially required – or endless clarifications on already provided information can provide a pretext for approvals to drag on indefinitely. The decision-making process is usually fairly opaque. The “dial” on granting or rejecting requests, like a volume setting, can readily be turned up or down at the whim of those in charge. The London framework and the subsequent agreement it is intended to produce are unlikely to require either country to scrap their licensing systems. Instead, the countries will provide easily reversible political guidance to their bureaucracies to “loosen up” in granting licences. As both the US and China wrestle with export controls and seek to maximise the advantage they enjoy by manipulating access to what the other side needs, the dynamics appear to favour China. Faced with tightening US restrictions in recent years, China has doubled down on efforts to advance its technological capacities – especially with regard to semiconductors critical for artificial intelligence applications – and is rapidly cutting into the US technological advantage. As evidenced by the DeepSeek breakthrough, it has experienced some success. In a perhaps ironic twist, US attempts to slow China’s technological advancement might have instead prodded it into greater progress than would otherwise have been achieved. Meanwhile, the US has belatedly begun seeking alternative sources of rare earths, both domestically and abroad, but that horse has long since bolted. US leaders failing to foresee this acute vulnerability is likely to be seen by future historians as a glaring strategic blunder. China recognised the strategic importance of rare earths decades ago and – through a combination of state subsidisation, export controls and targeted government policies – built a predominant global position that will be difficult to overtake. China is also better positioned from a process perspective as the ability to control US access to rare earths lies almost entirely in its hands. It controls both mining and processing, the two essential factors in the rare earth equation, as it mines about 70 per cent of the world’s rare earths and does about 90 per cent of global processing. In contrast, the US ability to control China’s access to cutting-edge technologies is now dependent on a far-flung global network of cooperation. The US has barred foreign companies from selling certain advanced semiconductors to China if they were manufactured using US products or software, and it has successfully pressured foreign sources not to sell the sophisticated machinery necessary for cutting-edge chips to China. The need for this unprecedented level of cooperation comes at a time when the Trump administration has not only demonstrated disdain for cooperation but has also launched a trade war against many of the partners it needs the most. Even under ideal circumstances, sanction regimes intended to deny a country access to a particular technology can be notoriously leaky. By means both fair and foul, countries are usually able to find successful strategies to partially circumvent the sanctions. It is difficult, especially in globalised industries such as semiconductors, to keep the genie in the bottle, and China’s deep entrenchment in supply chains makes the task that much more difficult. China is almost certain to close the technology gap with the US long before the US will be able to overcome China’s advantage on rare earths. The trade war and the wider geopolitical rivalry between these countries will continue for years to come and across multiple fronts, many of which favour the US. But at this stage, as both sides turn up the heat by curbing access to what the other needs, the advantage is China’s.

US-China trade war’s shift to export controls is music to Beijing’s ears

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}China’s ability to control exports of rare earths far outstrips the ability of the US and its allies to slow China’s technological advance

China’s ability to control exports of rare earths far outstrips the ability of the US and its allies to slow China’s technological advance