Speaker 1: Bloomberg Audio Studios, podcasts, radio news.
Speaker 2: I have a great relationship with Presidency. I expect to
Speaker 2: be able to make a good deal with him, and
Speaker 2: he'll make a good I want him to make a
Speaker 2: good deal for China, but it's got to be fair.
Speaker 1: Ahead of a high stakes meeting with Chinese President Shijenping
Speaker 1: next week, US President Donald Trump said he looks forward
Speaker 1: to making a trade deal.
Speaker 2: Certainly, there are a lot of people that are waiting
Speaker 2: for it, and maybe it won't happen. Maybe it won't happen.
Speaker 2: Things can happen where for instance, maybe somebody will say
Speaker 2: I don't want to meet it's too nasty, but it's
Speaker 2: really not nasty. It's just business.
Speaker 1: If the meeting on the sidelines of the annual Apex
Speaker 1: summit goes as planned, it would be Trump and She's
Speaker 1: first in person conversation since Trump began his second term
Speaker 1: and launched a trade war that's upended the relationship between
Speaker 1: the world's two largest economies.
Speaker 3: U US went from negligible tariffs on China to ten percent,
Speaker 3: then twenty, then fifty four, then one oh four, then
Speaker 3: one forty five.
Speaker 1: There's no shortage of sticking points in a potential trade
Speaker 1: deal between the US and China, but Bloomberg's Daniel ten Kate,
Speaker 1: Executive editor of Government and Economics in Asia, says he's
Speaker 1: watching one critical element of these negotiations closely.
Speaker 3: As long as China agrees not to really disrupt the
Speaker 3: flow of rareth magnets, then you could see that they
Speaker 3: could come to some sort of agreement where they extend
Speaker 3: this tentative truce.
Speaker 1: When China announced sweeping new controls on its exports of
Speaker 1: rare earth's earlier this month, Treasury Secretary Scott Bessentt accused
Speaker 1: Beijing of pointing a bazooka at the global supply chain.
Speaker 1: Trump threatened to call off talks the sheet altogether and
Speaker 1: add an additional one hundred percent tariff on China, but
Speaker 1: within forty eight hours Trump had backed off.
Speaker 2: I want them to play the rare earth game with US, and.
Speaker 1: On Monday, the President signed a landmark deal with Australia
Speaker 1: to boost the supplies of rare earth as a strategic
Speaker 1: counter to China. The deal outlines eight and a half
Speaker 1: billion dollars worth of projects, with both nations initially committee
Speaker 1: one billion dollars over the next six.
Speaker 2: In about a year from now, we'll have so much
Speaker 2: critical mineral and rarer so that you won't know what
Speaker 2: to do with him.
Speaker 1: His retreat was proof that the rare Earth's bazooka is
Speaker 1: a weapon to be reckoned with and gives China serious
Speaker 1: leverage in this trade war with the US.
Speaker 3: Trump took his biggest swing at China and he was
Speaker 3: forced to back down. And for Shijimping, that was a
Speaker 3: big political win. He was the only leader in the
Speaker 3: world who had enough ammunition to be able to force
Speaker 3: the Americans to back down. It is a game changer,
Speaker 3: and I think the US and China are both coming
Speaker 3: to terms with this. You see the US realizing that
Speaker 3: all of a sudden, China is these rights and China's
Speaker 3: put the US on the back foot a little bit. Here.
Speaker 1: This is the Big Take Asia from Bloomberg News. I'm Wanha.
Speaker 1: Every week we take you inside some of the world's
Speaker 1: biggest and most powerful economies and the markets, tycoons and
Speaker 1: businesses that drive this ever shifting region. Today on the show,
Speaker 1: China has dominated the rare Earth's world for decades, but
Speaker 1: it's only now begun to make the most of that influence.
Speaker 1: We'll look at how it's using American trade tactics to
Speaker 1: press its rare earth's advantage and explore what weapons the
Speaker 1: US has in its arsenal. To fight back, China introduced
Speaker 1: new rules this month, the clamp down on the supply
Speaker 1: and use of rare earths. Bloomberg's Dantan Kate says the
Speaker 1: curbs go much further there then previous restrictions.
Speaker 3: If any product contains even a trace amount of rare earth,
Speaker 3: then China has the right to restrict that product. So
Speaker 3: if you have zero point one percent of rarest to
Speaker 3: make any given product in the world, you need a
Speaker 3: license and permission from China. Previous actions China cut off
Speaker 3: supplies of rare earth to various companies. So if you
Speaker 3: needed rare earth to make an electric vehicle, for instance,
Speaker 3: and you bought that from China, China was saying, you
Speaker 3: need a license to get these rare earths, whereas before
Speaker 3: you could freely buy them. Now, what China has done
Speaker 3: is they're not just stopping the rare earth from getting
Speaker 3: to those factories, but they're saying, even if you use
Speaker 3: those rarest to make that car, if you want to
Speaker 3: sell that car to another country, you're also going to
Speaker 3: need permission now that just seems completely unworkable in reality,
Speaker 3: and that's what raises questions about, Okay, are they going
Speaker 3: to put a stop to global trade. No, that's not
Speaker 3: in China's interest at all, but they are asserting the
Speaker 3: right to effectively intervene whenever they want.
Speaker 1: The rules are set to take effect later this year,
Speaker 1: and while it's unclear how Beijing plans to enforce them,
Speaker 1: Dan says the move shows just how powerful a weapon
Speaker 1: rare earths can be for China.
Speaker 3: They control a lot of the supply, somewhere in the
Speaker 3: neighborhood of about seventy percent of that. But what China's
Speaker 3: real advantage is that they can process the rare eer.
Speaker 3: So once you take the rare eers out of the ground,
Speaker 3: you still need to ship them to somewhere where they
Speaker 3: can be processed into a material that can then be
Speaker 3: sent to a factory that can be used to make
Speaker 3: a phone or make a TV or something like that.
Speaker 3: And China controls nearly all of that technology now. The
Speaker 3: US used to be the world's largest producer of wearers,
Speaker 3: and they let that atrophy and disappear to China back
Speaker 3: in the eighties and nineties. So the issue is now
Speaker 3: that the amount of rarer supply that includes no Chinese
Speaker 3: minerals or any processing by Chinese technology using Chinese technology
Speaker 3: is very small, and is.
Speaker 1: It viable then for the world to somehow very quickly
Speaker 1: establish another supply chain for wearers that doesn't rely on China.
Speaker 3: It depends on who you talk to there. Again, I
Speaker 3: mean Trump will say in a year, will be okay,
Speaker 3: We'll have enough supplies, We'll be able to get the
Speaker 3: processing up and running. In the US is doing I
Speaker 3: mean the Pentagon has taken a steak MP Materials, which
Speaker 3: owned the largest rarest mind in the US, which is
Speaker 3: based in California. We've also seen the US government taking
Speaker 3: equity stakes in some Australian producers. You have Australia pitching
Speaker 3: ITSLF as the savior in this regard. But the problem
Speaker 3: there is that if you talk to certain people in
Speaker 3: the industry, they say, actually getting the technologies up to
Speaker 3: process these heavy rare earths is not that easy. It
Speaker 3: actually takes a lot of time to come up with
Speaker 3: and you're starting from scratch almost because you've lost some
Speaker 3: of the materials to do that. The issue also is
Speaker 3: that even if you have a country like Malaysia processing
Speaker 3: a lot of rare earth, if they're using Chinese equipment,
Speaker 3: then China can also block those wearers from going to
Speaker 3: the US. So the amount of the rare earth's supply
Speaker 3: chain globally that doesn't just include minerals from China, but
Speaker 3: also doesn't rely on Chinese technology to process those minerals,
Speaker 3: that is very small, and that is the fundamental issue.
Speaker 1: Now, China has spent years cultivating its rare earth industry.
Speaker 1: Today it dominates the market as a producer and refiner
Speaker 1: of these vital minerals, but it's only recently been trumping
Speaker 1: the rare earth card in trade negotiations.
Speaker 3: If you look in the nineteen eighties, China's known that
Speaker 3: it has where dung Jopping at one point said the
Speaker 3: Middle East has oil, China has rare earth. So they
Speaker 3: started processing really once China emerged from the mal years
Speaker 3: and they started opening up the country, rare earth was
Speaker 3: one of the first industries that they really started to develop,
Speaker 3: and you saw a lot of the rarest production moving
Speaker 3: from the US and other places to China in the
Speaker 3: nineties and by the two thousands, they've had a very
Speaker 3: firm grip on the supply almost ninety ninety five percent.
Speaker 3: Things really came to a head in twenty ten when
Speaker 3: there was a territorial dispute with Japan, and China cut
Speaker 3: off rare earth then, and that really spooked Japan, and
Speaker 3: the world really had known that, Okay, we can't rely
Speaker 3: on China anymore for supplies of rare earth. China can
Speaker 3: just flip a switch, cut us off, and then suddenly
Speaker 3: we don't have the building blocks we need to produce
Speaker 3: a lot of the technology and products that are used
Speaker 3: in the modern economy. But even after that, we're still
Speaker 3: here fifteen years later, and China still has a stranglehold
Speaker 3: on the world supply.
Speaker 1: Rare earths have been central to negotiations between the US
Speaker 1: and China since Trump relaunched his trade war earlier this year.
Speaker 1: When Trump imposed tariffs of more than one hundred percent
Speaker 1: back in April, she cut off crucial rare earth supplies
Speaker 1: to the US. The resumption of rare earth shipments was
Speaker 1: top of Trump's wish list during trade talks with China
Speaker 1: in June. It was also a key component of the
Speaker 1: trade truce between the two countries that's set to expire
Speaker 1: next month.
Speaker 3: The fundamental part of the truce is that the tariffs
Speaker 3: go down to round fifty five percent, and in return,
Speaker 3: the US gets enough rare earth magnets that it needs
Speaker 3: to function to keep its factories open. The issue is
Speaker 3: that China really wants the US to stop putting any
Speaker 3: other measures on. China saw the deal as we want
Speaker 3: no more export controls, we want no more punitive actions
Speaker 3: against Chinese companies. So they saw the Commerce Department in
Speaker 3: particular doing that and the Hawks of the United States
Speaker 3: continuing to press ahead with that, and they basically just said,
Speaker 3: we need to put a stop to this, and we're
Speaker 3: going to take this opportunity to put this really big
Speaker 3: measure in place.
Speaker 1: China's latest moves pressing its advantage with rare earths were
Speaker 1: met with outrage in the White House, but their tactics
Speaker 1: taken directly from America's own manual on how to wager
Speaker 1: trade war. After the break, well, look at how China
Speaker 1: is trying to beat America at its own game and
Speaker 1: how the US is retaliating. During Donald Trump's first term
Speaker 1: in office, he dropped the hammer on China, blacklisting Chinese
Speaker 1: telecom giants and cutting the country off from critical US
Speaker 1: chips and software. Of course, Huawei not the only one
Speaker 1: affected by these decisions are the blast radius in terms
Speaker 1: of Huawei supplies pretty well. Overnight, Huawei, China's crown jewel
Speaker 1: in tech and the world's biggest maker of telecom gear,
Speaker 1: found itself scrambling, and so did Beijing. For all its
Speaker 1: economic muscle, China had no real way to strike back.
Speaker 1: Bloomberg's Dan ten Kate says that moment was a wake
Speaker 1: up call for Chinese present Shi Jinping to look at
Speaker 1: how the US used the law to shape export rules
Speaker 1: and control global trade and copy that playbook.
Speaker 3: The US basically owed China the way for doing all
Speaker 3: of these things. And so what you saw was after
Speaker 3: Trump's first term, Xijinping went out and he got those tools,
Speaker 3: and in twenty twenty they passed an export control law
Speaker 3: that gave them the ability to do everything that the
Speaker 3: US was currently doing to them. And if you look
Speaker 3: at the current rule, this rule that okay, if there
Speaker 3: is even a trace amount of errors, we can control
Speaker 3: everything that comes directly from something called the foreign Direct
Speaker 3: Product rule, which the US passed that in nineteen fifty nine.
Speaker 1: The Foreign Direct Product Rule, it allows the US to
Speaker 1: ban the sale of products to foreign firms if any
Speaker 1: part of a product is made with American intellectual property.
Speaker 3: Over the years, the US would implement that against China.
Speaker 3: So there was an exchange one in particular where Walter Mondale,
Speaker 3: the Vice president of the time, went to China and
Speaker 3: he spoke with Donghaoping in nineteen seventy, and a lot
Speaker 3: of that conversation was around, okay, what can you sell us,
Speaker 3: and Dung at one point expressed frustration. He said, the
Speaker 3: Japanese and the Europeans won't even sell us a product
Speaker 3: because it as an American component. And that principle is
Speaker 3: essentially what China's doing today. If you have a bit
Speaker 3: of wearers that's been manufactured through our processes, then we
Speaker 3: assert the right to be able to control that. And
Speaker 3: China's ultimate goal here is not necessarily to restrict trade
Speaker 3: and try and shut down the global supply chains. It
Speaker 3: certainly doesn't have the capability to enforce that at all,
Speaker 3: but it does want the same tools as the US,
Speaker 3: and it wants to show the world that, hey, we
Speaker 3: can mess with you any time we want. We can
Speaker 3: assert the right to come in and block you from
Speaker 3: doing things.
Speaker 1: Dan says, the US still has plenty of weapons of
Speaker 1: its own, and China isn't in a good position to
Speaker 1: fight off a sustained attack on trade. It's struggling with
Speaker 1: manufacturing overcapacity, a slump in consumer spending, and an AILNK
Speaker 1: property sector. Dan says it's not that America's trade measures
Speaker 1: wouldn't be highly effective against China, it's that using them
Speaker 1: could be risky to the US.
Speaker 3: The US has a lot in its arsenal. The question
Speaker 3: is what measures can the US put in place that
Speaker 3: won't blow back on America, and that looks limited to
Speaker 3: things like airplane parts, chip design, software, ethane, and a
Speaker 3: few other things that China needs that the US has now.
Speaker 3: The other big one is tariffs. Obviously, if Trump wanted
Speaker 3: to put one hundred and fifty percent tariffs on Chinese
Speaker 3: goods heading into America, that would do serious i economic
Speaker 3: damage to China, but it would also hurt the US.
Speaker 3: Also controls the financial system, so it could do drastic
Speaker 3: things there, but again, anything they do on that front
Speaker 3: will also blow back at the US. So Trump is
Speaker 3: looking for something that he can hit China with that
Speaker 3: wouldn't hurt the US and there's not too many great options.
Speaker 3: He can do some things, but ultimately he wants a
Speaker 3: deal where everybody wins.
Speaker 1: Now, looking ahead, Trump and she will meet at the
Speaker 1: APEX summit in South Korea next week. What are the
Speaker 1: likely outcomes that we can expect from that?
Speaker 3: As long as China agrees not to really disrupt the
Speaker 3: flow of rare earth magnets, then you could see that
Speaker 3: they could come to some sort of agreement where they
Speaker 3: extend this tentative truce. Trump also wants the TikTok deal
Speaker 3: completed and she needs to sign off on that, so
Speaker 3: that's another thing that could come out of it. And
Speaker 3: the other major thing is on soybean purchases. That's a
Speaker 3: big constituency for the US and for Trump. So China's
Speaker 3: not blowing soybeans anymore, and it says it can't because
Speaker 3: the tariffs are too high. But if there's some agreement
Speaker 3: on that, then that could also be something we see
Speaker 3: out of that.
Speaker 1: Meaning So it sounds like there are things that both
Speaker 1: countries want that could still make them walk away and
Speaker 1: say we got to win. Yeah.
Speaker 3: I think the ultimate problem here is that the space
Speaker 3: for a deal is very limited by all the national
Speaker 3: security restrictions that both sides have on each other. I
Speaker 3: think that they don't really see a deal until you
Speaker 3: get particularly Congress and the Hawks and Washington coming to
Speaker 3: the conclusion that it's okay to have China involved. That's
Speaker 3: just politically very difficult to see, particularly with all the
Speaker 3: concerns about Chinese spying, China's military mighty. You'd have to
Speaker 3: fundamentally change the conversation in Washington now. Trump during his
Speaker 3: first term he basically flipped the conversation on China and
Speaker 3: turned it into a bipartisan consensus against China and for
Speaker 3: more hawkish posture towards China. So if anyone can change
Speaker 3: the conversation in Washington toward China, it could be Trump.
Speaker 1: But Beijing's move to leverage its rare earth advantage has
Speaker 1: now boxed Washington in limiting its options and raising the
Speaker 1: possibility that this dispute may have no clear resolution, at
Speaker 1: least not anytime soon.
Speaker 3: If you think about the leverage that both sides have
Speaker 3: on each other. Right now, China has this rare earth card,
Speaker 3: so what is the US doing. They're working over time
Speaker 3: to try and create an alternative supply chain, so they're
Speaker 3: no longer dependent on China's doing the same thing on
Speaker 3: their side. They're trying to maintain this advantage as much
Speaker 3: as possible, and also look at the areas where the
Speaker 3: US has leverage over them, particularly on high end Nvidia chips,
Speaker 3: and they're trying to build their own chips so they're
Speaker 3: not relying on the US. So both economies are necessarily
Speaker 3: looking for ways to work together over the long term.
Speaker 3: They're looking for ways to not be reliant on each other.
Speaker 3: Neither country has any leverage on them, and that's where
Speaker 3: they're heading. And so that dynamic doesn't lead need to
Speaker 3: be optimistic that we're going to get a long term
Speaker 3: conclusion to this anytime soon.
Speaker 1: This is The Big Take Asia from Bloomberg News. I'm wanha.
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