Trump’s gut tells him he’s got China on the ropes. He couldn’t be more wrong
That Donald Trump, he’s a crafty fellow. His madcap series of tariffs followed by escalations and then exemptions and then more tariffs may have looked like “peak stupid”, as one British commentator called it.
But his secret intention all along was to isolate China, apparently. Other countries ended up with lower tariff penalties while China alone is slammed with a prohibitive 145 per cent tariff on all exports to the US.
Illustration by Dionne Gain Credit:
“This was his strategy all along,” Trump’s Treasury Secretary Scott Bessent said at the White House late last week. “And you might even say that he goaded China into a bad position,” he added with a knowing smile.
But wait. Xi Jinping has another view. China’s president said that “there will be no winners in a tariff war, and going against the world will isolate oneself”. While China hit back with a 125 per cent tariff on the US, it didn’t impose tariffs on any other nation.
According to Xi, it’s the US that has isolated itself by putting a tariff wall around the American economy, alienating every US ally and friend in the process. This week, Xi is embarking on a charm offensive of South-East Asia to emphasise the contrast between China’s stability and America’s destructive erraticism.
Who’s right? First, remember what Deng Xiaoping said. The father of modern China’s economic success observed that: “The Middle East has oil. China has rare earths.”
Saudi Arabia used its dominance in the global oil market as a strategic weapon. Today, Beijing is using rare earths as a strategic weapon.
Now Xi Jinping is translating this observation into geopolitical action. Saudi Arabia used its dominance in the global oil market as a strategic weapon, to control trade, investment and foreign relations. Today, Beijing is using its dominance in rare earths as a strategic weapon. In the past few days, it has banned all exports of these 17 essential minerals in response to the Trump tariffs.
So what? Rare earths are needed for just about every high-tech product in the world. You can’t have a modern manufacturing economy without them.
They’re essential for making mobile phones and missile guidance systems, medical MRI scanners and cancer treatments, wind turbines and EV motors, batteries, LED lights and computer screens, jet engines and sonar systems, among hundreds of other applications. One more, and it’s a big one. You can’t make computer semiconductors – chips – without them.
Despite their name, rare earths aren’t rare at all. But concentrated, high-grade deposits are hard to find. The US isn’t well-endowed. It has only about 1 per cent of known economic reserves.
The Lynas Rare Earths processing plant in Kalgoorlie, Western Australia. Lynas is one of the few key suppliers of the critical minerals outside China.Credit: Bloomberg
The countries with the biggest known reserves are China with more than one-third, Brazil with one-fifth, then Vietnam, Russia, India and Australia with 5 per cent.
“We’ve got a lot of what are often considered ‘primary’ sources in Australia – that is, well-recognised rare earth minerals, at relatively high grade,” says the CSIRO’s Chris Vernon, notably Western Australia’s Mount Weld, where Australian company Lynas Rare Earths has its mine.
This is why Kim Beazley has said that “Western Australia is perhaps ground zero in an apparent critical minerals war”, as he told ASPI’s The Strategist in 2022. The Albanese government has offered the Trump administration a deal to guarantee a reliable supply chain of critical minerals as part of a broader deal to win a tariff exemption.
Anthony Albanese is expected to speak about his plans for a strategic reserve of rare earths – and the broader group of 30 critical minerals of which rare earths are a part – during the election campaign.
The White House has yet to respond to the Australian offer. But one day soon this will become an urgent priority for Trump.
China’s dominance is far greater than its share of reserves suggests. Beijing has spent some 20 years developing a near-monopoly of the supply of processed rare earths – about 90 per cent of all processing and refining is done in China.
So Xi’s new export ban is a potential boot on the throat of US manufacturing, medicine and military capability. Beijing is working out a detailed export licensing system so that it can resume exports with tight control over who gets what and when.
Does Donald Trump understand America’s vulnerability? Yes, that’s why he’s put a very public priority on shaking down Ukraine and Greenland for their rare earths deposits.
But he might not realise that it would take as long as 10 years for any of them to be developed into functioning mines. And his grasp of the detail might not be strong – in one extended set of remarks he repeatedly called them “raw earths”.
Xi flexed his rare earths muscles once before, in 2020, when he cut exports to Japan as a political punishment. That’s why most big Japanese manufacturers have built stockpiles large enough to last for a year or more. But US companies generally have not. And Xi is now, again, using China’s rare earths to coerce America.
This was one key reason that “the US economy will suffer more than the Chinese economy” in the tariff stand-off, Adam Posen, president of the Peterson Institute for International Economics in Washington, wrote in Foreign Affairs last week.
“The Trump administration may think it’s acting tough, but it’s, in fact, putting the US economy at the mercy of Chinese escalation. The US will face shortages of critical inputs ranging from basic ingredients of most pharmaceuticals to inexpensive semiconductors used in cars and home appliances to critical minerals for industrial processes including weapons production.”
Adds the Beijing-based Arthur Kroeber of Gavekal Economics, China can “get along fine without imports from the US. Five years of export controls have helped it get very good at making things without American technology.”
Kroeber also points out in Monday’s Financial Times that US reliance on Chinese industrial inputs is three times that of China’s reliance on US components. Trump faces only “frustration and disappointment” if he expects China to buckle.
As world trade rearranges itself around America’s self-imposed tariff wall, it will be the US, not China, that finds itself isolated.
Trump said last week that he was making tariff decisions “instinctively”. Information? Expertise? That’s for wimps. Trump explained in his first term the source of his unique insight: “My gut tells me more sometimes than anybody else’s brain can ever tell me”.
Peter Hartcher is international editor.
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