The upcoming trade talks between the US and China in Stockholm are expected to be tense, with Beijing arriving at the negotiating table more emboldened than ever. China’s firm grip on strategic minerals has compelled the Trump administration to roll back some export curbs, including the ban on sales of a key Nvidia AI chip. The Chinese economy has delivered better-than-expected growth, posting a record trade surplus that underscores the resilience of its exports.
Key Issues on the Table
- Tariffs: China is seeking the removal of the 20% fentanyl-related tariffs imposed by the US. The tariffs, which include a 10% “reciprocal” tariff, total around 55%.
- Technology Export Controls: Beijing may ask Washington to further roll back technology export controls imposed on China, including the blacklisting of hundreds of Chinese companies.
- Rare Earths and Supply Chains: China has learned the value of its leverage on the US, particularly in rare earths and supply chains. The country has already used this leverage to limit exports of rare earth minerals and magnets.
US Expectations
- Extension of Trade Truce: Treasury Secretary Scott Bessent expects a “likely” extension of the trade truce, which currently expires on August 12.
- China’s Purchase of Sanctioned Oil: The US will discuss China’s purchase of sanctioned oil from Russia and Iran, as well as its support for Russia’s war against Ukraine.
Expert Insights
- Fragile Ceasefire: Josh Lipsky, chair of international economics at the Atlantic Council, believes a stopgap agreement is the most likely outcome, but notes that the situation can turn fragile and unpredictable.
- Leverage: Wu Xinbo, director of the Center for American Studies at Fudan University, says China holds significant cards, including its dominance in rare earths and supply chains, and is willing to play them when necessary.
Despite China’s overall economic slowdown, its high-tech industries are rapidly growing, with sectors like electrical machinery, computers, and electronics seeing significant investment and innovation. China’s manufacturing value added is more than one-and-a-half times that of the United States, and it’s leading globally in exports of high-tech goods such as solar panels, lithium-ion batteries, and electric vehicles. The country’s focus on techno-industrial policy and nurturing high-tech firms will likely continue, presenting strategic challenges for the US. China’s economic growth may be slowing, but its technological advancements are undeniably gaining ground.