President Donald Trump's preference for making one-on-one deals with allies and adversaries has been the hallmark of his self-proclaimed dealmaking magic, but with China's trade record seemingly on the verge of collapse, the fragility of such an approach has been exposed.
China's Commerce Ministry unveiled broad new export controls on rare earths and other critical materials crucial to U.S. defense and technology applications late Wednesday in New York. The news caused shock among those specific groups, but failed to generate a similar reaction in the broader markets.
That is until Trump's nearly 500-word Truth Social post, published around 11 a.m. Friday in New York, threatened a “massive increase” in tariffs on goods from China. The move sent the major US indices into a daylong freefall. Hours later, Trump said he would hit China with an additional 100% tariff starting Nov. 1 — threatening to raise tariffs near what both sides warned earlier this year would mean an effective decoupling. He also announced plans for export controls on critical software.
The sudden and unexpected back-and-forth between the world's two largest economies came just weeks ahead of a key meeting between Trump and Chinese President Xi Jinping in South Korea, where the two sides expected to hammer out the details of a broad trade deal. The central leverage point of the negotiations is export controls – specifically existing US export controls on semiconductors and AI chips that China needs, and Chinese export controls on crucial minerals and magnets that the US needs.
“The Chinese saw the reaction and influence they had on export controls earlier this year, so it's not surprising that they entered into these talks to try to tip the balance in their favor,” said Jon Hillman, a senior fellow for geoeconomics at the Council on Foreign Relations. “Any agreement will always be jeopardized if China decides to use this influence again.”
Trump negotiated a 90-day truce with China in May, delaying the imposition of new tariffs or export controls that were threatened during his “Liberation Day” announcement in April. The move calmed global markets, rocked by a rapid escalation of tariffs and retaliatory tariffs, briefly pushing U.S. duties on Chinese goods to 145%.
China also agreed to lift the export ban on its crucial minerals and magnets. As the months passed, however, Trump allies in the farming states began grumbling that China had essentially stopped importing U.S. soybeans — a move the president described as a negotiating tactic. The White House has said it is planning an aid package for farmers but has not yet announced details.
Still, it was a relatively peaceful armistice period. But that came to an end this week when China announced the escalation of export controls. Now, just like six months ago, both economies are once again on the brink of a trade war.
It's the uncomfortable reality of Trump's many bilateral trade negotiations. While U.S. and global markets react positively to grand statements that the president has agreed to deals or delays — with China, with Russia's Vladimir Putin, with India and others — there is often an equal shock when Trump or his trading partner walk back promises that throw the deals into new uncertainty.
“The US now faces a more assertive, well-prepared, less dependent and confident Beijing than during Trump 1.0,” when a so-called “phase one” deal was signed that secured several concessions by Beijing, Wendy Cutler, senior vice president at the Asia Society Policy Institute, wrote in a LinkedIn post on Saturday. “The past 24 hours leave no doubt that those days are over.”
US stocks suffered their worst sell-off in six months on Friday. Wall Street's main fear gauge reached levels not seen since April. Nvidia Corp., the world's largest publicly traded company and a central player in the middle of the two countries' negotiations over export controls, fell nearly 5%. All this after a single social media post from the president.
“We have been very risk averse on the equity side because we believe there is a lot of uncertainty and risk,” said Dan White, head of research at Blue Creek Capital. “Market sentiment showed a rosy scenario for us, but the reality is that there was a lot of risk and uncertainty, so today was a wake-up call for many people.”
The U.S. can more easily conduct bilateral negotiations with smaller countries that are in a weaker position, but when it comes to larger countries like China, collective responses are more effective, said Cutler, who has negotiated deals for the administration in the office of the U.S. Trade Representative for decades.
The president floated the idea that he may not meet Xi in South Korea due to the escalation, but experts are confident that the Chinese announcement and Trump's response are part of the negotiations ahead of the actual meeting. However, the concern of many, including hawks and former Trump administration officials, is that China has a stronger hand than ever.
“There is a recognition among the Chinese media in China that China has the levers and is using them to materially weaken our manufacturing sector, including semiconductors, AI and defense items,” said Nazak Nikakhtar, a former Commerce Department official during Trump's first term and a current partner at Wiley Rein who represents clients in those industries.
“But if you're pursuing handshake deals, it's classic game theory: The other side is going to evaluate your response if they back out. And if they think you're a chicken, they're just not going to stick with the deal.”
With help from Brendan Murray, Natalia Drozdiak and Eric Martin.
This article was generated from an automated feed from a news agency without any changes to the text.
