US-China trade truce leaves military-use rare earth issue unresolved, sources say
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1 of 2 A man works at the site of a rare earth metals mine at Nancheng
county, Jiangxi province, China, October 20, 2010. REUTERS/Stringer/File
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[1/2]A
man works at the site of a rare earth metals mine at Nancheng county,
Jiangxi province, China, October 20, 2010. REUTERS/Stringer/File Photo Purchase Licensing Rights - China withholding export of certain military-use rare earth materials
- China negotiators in London appeared to link rare earths export to U.S. AI chip curbs
- Trump administration faces challenges due to China's rare earths control
- US signaled possible extension to current tariffs beyond August 10 deadline, sources say
BEIJING/SINGAPORE, June 15 (Reuters) - The renewed U.S.-China
trade truce
struck in London left a key area of export restrictions tied to
national security untouched, an unresolved conflict that threatens a
more comprehensive deal, two people briefed on detailed outcomes of the
talks told Reuters.
Beijing
has not committed to grant export clearance for some specialized
rare-earth magnets that U.S. military suppliers need for fighter jets
and missile systems, the people said. The United States maintains export
curbs on China's purchases of advanced artificial intelligence chips
out of concern that they also have military applications.
At
talks in London last week, China's negotiators appeared to link
progress in lifting export controls on military-use rare earth magnets
with the longstanding U.S. curbs on exports of the most advanced AI
chips to China. That marked a new twist in trade talks that began with
opioid trafficking, tariff rates and China's trade surplus, but have
since shifted to focus on export controls.
In
addition, U.S. officials also signalled they are looking to extend
existing tariffs on China for a further 90 days beyond the August 10
deadline agreed in Geneva last month, both sources said, suggesting a
more permanent trade deal between the world's two largest economies is
unlikely before then.
The
two people who spoke to Reuters about the London talks requested not to
be named because both sides have tightly controlled disclosure. The
White House, State Department and Department of Commerce did not
immediately respond to requests for comment. China's Foreign and
Commerce ministries did not respond to faxed requests for comment.
President
Donald Trump
said on Wednesday the handshake deal reached in London between American
and Chinese negotiators was a "great deal," adding, "we have everything
we need, and we're going to do very well with it. And hopefully they
are too."
And
U.S. Treasury Secretary Scott Bessent said there would be no "quid pro
quo" on easing curbs on exports of AI chips to China in exchange for
access to rare earths.
Chart shows China's share in the global rare earths reserves and mining and refining production.
CHINA CHOKEHOLD
But China's chokehold on the rare earth magnets needed for weapons systems remains a potential flashpoint.
China dominates global production of rare earths and holds a virtual monopoly on refining and processing.
A
deal reached in Geneva last month to reduce bilateral tariffs from
crushing triple-digit levels had faltered over Beijing's restrictions on
critical minerals exports that took shape in April.
That
prompted the Trump administration to respond with export controls
preventing shipments of semiconductor design software, jet engines for
Chinese-made planes and other goods to China.
At
the London talks, China promised to fast-track approval of rare-earth
export applications from non-military U.S. manufacturers out of the tens
of thousands currently pending, one of the sources said. Those licenses
will have a six-month term. Beijing also offered to set up a "green
channel" for expediting license approvals from trusted U.S. companies.
Initial signals were positive, with Chinese rare-earths magnet producer JL MAG Rare-Earth
(300748.SZ)
, opens new tab,
saying on Wednesday it had obtained export licences that included the
United States, while China's Commerce Ministry confirmed it had approved
some "compliant applications" for export licences.
But
China has not budged on specialized rare earths, including samarium,
which are needed for military applications and are outside the
fast-track agreed in London, the two people said. Automakers and other
manufacturers largely need other rare earth magnets, including
dysprosium and terbium.
BIG ISSUES REMAIN
The
rushed trade meeting in London followed a call last week between Trump
and Chinese leader Xi Jinping. Trump said U.S. tariffs would be set at
55% for China, while China had agreed to 10% from the United States.
Trump
initially imposed tariffs on China as punishment for its massive trade
surplus to the United States and over what he says is Beijing's failure
to stem the flow of the powerful opioid fentanyl into the U.S.
Chinese analysts are pessimistic about the likelihood of further breakthroughs before the August 10 deadline agreed in Geneva.
"Temporary
mutual accommodation of some concerns is possible but the fundamental
issue of the trade imbalance cannot be resolved within this timeframe,
and possibly during Trump's remaining term," said Liu Weidong, a
U.S.-China expert at the Institute of American Studies, Chinese Academy
of Social Sciences.
An
extension of the August deadline could allow the Trump administration
more time to establish an alternative legal claim for setting higher
tariffs on China under the Section 301 authority of the USTR in case
Trump loses the ongoing legal challenge to the tariffs in U.S. court,
one of the people with knowledge of the London talks said.
The
unresolved issues underscore the difficulty the Trump administration
faces in pushing its trade agenda with China because of Beijing's
control of rare earths and its willingness to use that as leverage with
Washington, said Ryan Hass, director of the John L. Thornton China
Center at the Brookings Institution.
"It
has taken the Trump team a few punches in the nose to recognise that
they will no longer be able to secure another trade agreement with China
that disproportionately addresses Trump's priorities," Hass said.
Reporting
by Laurie Chen in Beijing and Fanny Potkin in Singapore; Additional
reporting by Karen Freifeld in New York and Trevor Hunnicutt in
Washington; Edited by Kevin Krolicki and Lincoln Feast.