China's revenge: Heavy weapons threaten Trump

China's revenge against Trump

Wolfgang Hansson

This is a commentary text. Analysis and positions are those of the writer.

Updated 22.00 | Published 21.27

China accounts for much of the world's production of rare earth metals. Photo: AP

President Trump seems to believe that he is the one holding all the strong cards in the tariff war.

But now China is showing that it has sharp claws to take revenge with.

The country is temporarily stopping all exports of rare earth metals and magnets.

A hard blow to American companies that need them for their production.

Quick version

• China has stopped all exports of rare earth metals and magnets to the United States, which is a strategic blow to American companies that depend on them for their production.
• The decision to block exports is part of China's response to the tariff war against the US and signals that China also has strong leverage that can affect the US economy.
• The conflict reflects broader international tensions and potential new alliances, while at the same time it could lead to negotiations and possibly reduced tariffs between China and the US.

China has a de facto monopoly on many rare earth metals and particularly strong magnets that contain them.

Extraction requires chemicals that are very harmful to the environment. China is prepared to accept this and has acquired a unique position that it can now exploit.

The metals are needed to manufacture a number of strategically important products such as mobile phones, electric car batteries, cars, space technology and semiconductors. To name just a few examples.

Many goods we are today very dependent on.

Rare earth metals and magnets are also indispensable in the production of drones and other military equipment.

The ban came a week ago but has received relatively little attention in all the financial and political chaos surrounding Trump.

The decision means that all exports of rare earth metals and other strategic minerals require special export licenses.

But first a system must be built to issue these licenses. China has told some American companies that it will take at least 45 days.

        

        

         Mine in Utah in the United States where rare earth metals are extracted.

         1 / 2Photo: AP

In the meantime. no exports will take place. What happens after that will probably depend on how Trump handles the tariff war.

Since the value of the metal exports is not that great, it does not mean a major loss of income for China. But it hits the United States hard.

Many American companies do not have large stocks of these important metals, according to the New York Times. If they don't get shipments, they will be forced to reduce or temporarily suspend their production

The halt is a way for Chinese dictator Xi Jinping to signal to Donald Trump that he also has some aces that could seriously harm the US.

In addition to strategic minerals and metals, China also has another strong means of pressure.

When Trump suddenly changed his mind about the tariffs last week, it was after great concern in the fixed income market. Long-term interest rates were on the rise after market participants began selling US government bonds.

We don't yet know exactly who was selling, but it's not a wild guess that China was responsible for some of it. China is one of the countries that has lent the most money to the US by buying US government bonds. If they sell them, the effect will be that confidence in US government bonds will decrease. Higher long-term interest rates lead to an increase in interest expenses on the gigantic US national debt. It will also become more expensive for American homeowners to pay off their loans.

Trump's goals are the exact opposite.

China noted that when Trump finally winked and eased the tariffs (though not against China), it was in the face of the threat of a financial crisis at home.

Xi Jinping has a weapon there that he can use in the near future if Trump sticks to the extremely high tariffs against China.

They are so high that if they remain at that level, trade between China and the United States will more or less come to a complete halt.

But it seems that Trump has already begun to waver. This weekend, the United States announced that it is exempting mobile phones and other electronics imported from China from the sky-high tariffs of 145 percent.

The rare metals are used in electronics such as mobile phones. Photo: Claudio Bresciani/TT

Trump seems to have realized that American consumers would not be too happy if the price of an iPhone suddenly increased by 7,000 kronor. Many iPhones, computers and other electronics sold in the US are manufactured in China.

Apple has probably put pressure on the administration to exempt their products. Demands will surely now be raised from others that they should also be exempted. With 145 percent tariffs, Chinese goods will be almost unsellable in the US.

China has raised its tariffs against the US to 125 percent but has said that it will not raise them further because it is pointless.

Instead, China is trying to create an unholy alliance against what it calls Trump's bullying and blackmail. When Spanish Prime Minister Pedro Sanchez recently visited Beijing, Xi Jinping lobbied for Europe and China to join forces against US tariffs. He has made the same call to Australia.

Although the chances of them happening are slim, it shows how Trump’s aggressive tariff war against the entire world could create new, unexpected alliances against the US president’s attempts to reshape world trade in a way that is maximally beneficial to the US.

China’s heavy weapons to fight back have an advantage. It will probably eventually lead to negotiations between China and the US and lower tariffs.

If trade between two superpowers like China and the US stops, it will have major ripple effects for the entire world. The risk of a deep international depression increases.

Hopefully, that’s a price Trump is not willing to pay.