When the ‘Chinese dream’ goes head-to-head against ‘America First’

Following the phone call between Chinese President Xi Jinping and US President Donald Trump to end the stalemate, a fresh round of negotiations between the two countries will be held on 9 June in London.

China’s Ministry of Foreign Affairs has called it “the first meeting of the China-US economic and trade consultation mechanism”, which was established after negotiations in Geneva in early May.

It appears that the Geneva talks were merely a warm-up, with the 90-day truce a buffer period. The London negotiations will mark the real close-quarters battle in deep waters. The whole world is watching how China and the US will negotiate and what the outcome will be.

US tariffs have not only targeted China but also the rest of the world. In early April, Trump announced a 90-day suspension of high tariffs on more than 75 countries outside China. Many are hoping that the China-US negotiations could indicate what the US will do over the next few weeks and what the world will look like after the grace period ends on 8 July.

In response, China has decisively played the rare earth card. Leveraging its dominant position built over roughly three decades in the rare earth supply chain, and taking a page from the US’s own playbook of export controls, China has restricted rare earth exports to the US, delivering a painful blow to American companies.

Meanwhile, the US government continues to apply pressure using its technological edge. In addition to export controls on semiconductors, it has also halted the sale of electronic design automation software to China, suspended export licenses for aircraft engine technologies and products destined for Commercial Aircraft Corporation of China, Ltd. (COMAC), and frozen approvals for the export of nuclear equipment to Chinese nuclear power plants.

The trade war has evolved from tariff battles into a tug of war over supply chains involving non-tariff barriers, forcing both China and the US to bear the resulting economic and social pressures. After this phase of mutual strangulation, both sides must now use the negotiation table to buy time and address substantive, core issues before the 90-day ceasefire ends.

Yet it is because both China and the US are now able to choke each other’s lifelines — unlike the previous dynamic of “a strong US and weak China” — that they are more likely to reach an agreement through negotiations.

In the lead-up to the formal negotiations in London, both sides have attempted to show goodwill. On the issue that Trump is most concerned with — China’s restriction of rare earth exports to the US — China’s Ministry of Commerce stated on the night of 7 June in response to a press inquiry that it had approved several export license applications for rare earth-related items, and that it would continue to strengthen the review process for compliant applications.

The Washington Post reported that on the evening of 6 June, the US State Department notified its embassies and consulates abroad to resume processing visa applications for foreign students bound for Harvard University. This move is largely seen as a response to Beijing’s concerns regarding the visa issues faced by Chinese students.

According to Xinhua, Xi also emphasised during the phone call with Trump that the US should “remove the negative measures taken against China”, and once again drew a red line on the Taiwan issue.

The “negative measures” could be referring to areas where China expects the US to make concessions during negotiations. As for what they entail, an article by Yuyuan Tantian (玉渊谭天) — a new media account under China’s state broadcaster CCTV — listed eight categories of US actions described as “interference and sabotage”.

One, an attempt to revoke China’s permanent normal trade relations (PNTR) status; two, generalising the concept of national security; three, a misuse of export controls; four, the imposing of Section 301 tariffs; five, the launching of Section 232 investigations; six, illegally abusing trade remedy measures; seven, implementing trade restrictions against China based on fentanyl-related reasons; eight, levying so-called reciprocal tariffs.

If Washington is unable to make tangible concessions on these eight issues, it would most likely need to proactively respond to Beijing’s concerns on the Taiwan issue. According to Yuyuan Tantian, Beijing is dissatisfied with the US State Department’s “modification of a key statement on Taiwan”, most likely referring to the omission of the phrase “we do not support Taiwan independence” from the US State Department’s website in February this year.

China’s dissatisfaction with the eight categories of US actions is fundamentally interlinked, and is directed towards its request that the US reduce or remove tariff and non-tariff barriers. The most notable and hard to resolve issue is Beijing’s claim that Washington is “generalising the concept of national security”. This is also the core reason for the US’s trade and tech wars against China: a deep-rooted sense that US national security is threatened.

The sudden outbreak of the once-in-a-generation pandemic exposed the vulnerability of the US’s supply chain reliance on a single or few countries for key supplies such as medical equipment, which led Washington to consider international trade issues within the framework of national security, and no longer perceiving them through market logic.

A review of supply chain security was launched during the Joe Biden administration, signalling the US’s intention to work with allies to accelerate the setting up of supply chains for chips and other strategically significant products, and to reduce dependence on China. Upon his return to the White House, Trump further pushed the “America First” policy to bring manufacturing back to the US and avoid as much as possible supply chain disruptions for strategic materials.

Both the Democrats and the Republicans believe that if there are no safeguards on the supply chain for critical materials — especially if these are under the control of geopolitical rivals — national security is not guaranteed. However, from Beijing’s perspective, the US is abusing the national security concept to preserve US interests across all sectors and exclude competitors such as China.

This is most likely the cause of the China-US confrontation over supply chains. At the same time, the US is also dissatisfied with China’s state apparatus support of certain industries, setting high entry barriers for foreign companies to allow China’s continued dominance in global manufacturing and supply chains.

Following the phone call between the US and Chinese leaders, the London negotiations could yield results: it might be an outcome that neither side is wholly satisfied with but acceptable to both, and one that lets each side stake a claim to some form of victory domestically.

As for whether the agreement reached by both parties will be sustainable, that is a separate issue. After all, what lies behind the multifaceted competition in tariffs, technology and export controls among other arenas is a direct confrontation between Trump’s “America First” policy to make America great again, and Xi’s “Chinese dream” in pursuit of the great rejuvenation of the Chinese nation.

This article was first published in Lianhe Zaobao as “中美进入深水区近战肉搏”.

Related: Behind the call: China’s rare earth strategy comes into focus | Can the US treat China as an enemy — and still ask for rare earths?