Rare earths standoff redux; Dutch government takes control of Nexperia; Global Leaders’ Meeting on Women; Fourth Plenum next week
Xi Jinping in a speech at the seventh meeting of the Central Financial and Economic Affairs Commission on April 10, 2020:
We must…consolidate and enhance the international leading positions of our advantageous industries, forge some game-changing “assassin’s mace” technologies, continuously strengthen whole-of-chain advantages in areas such as high-speed rail, power equipment, new energy, and communications equipment, improve industrial quality, tighten the international industrial chain’s dependence on China, and form a strong capacity to counter and deter deliberate supply cutoffs by external parties…
This round of pandemic prevention and control has made us realize that we must preserve the character of industrial and supply chains as global public goods, and we must resolutely oppose the politicization and weaponization of industrial and supply chains. In international economic and trade negotiations, we should work to forge international consensus and norms that safeguard the security of global industrial and supply chains and remove interference from non-economic factors, and we should strive through international cooperation to prevent and curb egregious actions that undermine global industrial and supply chains.
The global rare earths-related export control regime the PRC announced last week certainly goes a long way toward further tightening the international industrial chain’s dependence on China, and forming a strong capacity to counter and deter deliberate supply cutoffs by external parties. The new regime, at least from the perspective of the US and some other governments, looks like an egregious action that potentially undermines global industrial and supply chains.
President Trump’s first response on Truth Social announced 100% additional tariffs and “export controls on any and all critical software” effective November 1. He is likely to sign an executive order this week about those threatened measures, so perhaps we will get more detail on just what is included in “critical software”. Treasury Secretary Bessent told Fox News today that Trump still intends to meet with Xi in South Korea at the end of the month, just before that November 1 deadline.
Over the weekend the Ministry of Commerce issued a Q&A on the new global export control regime in which an official stated that “China’s export controls are not export bans” and that “the Chinese government will conduct reviews in accordance with laws and regulations, grant licenses to eligible applications, as well as actively consider the applicability of facilitation measures such as general licenses and license exemptions to effectively promote legitimate trade.” “Eligibility” of course will be impacted by how the applicant’s home government behaves…
The Q&A also spins the new regime as a justified response to a “string of new restrictive measures targeting China”, including the BIS 50% rule, but it is clearly something they had prepared in advance, and for which they were looking for a pretext to roll out.
Trump on Sunday posted what looks to be a bit of an attempt to troll Xi Jinping:
Don’t worry about China, it will all be fine! Highly respected President Xi just had a bad moment. He doesn’t want Depression for his country, and neither do I. The U.S.A. wants to help China, not hurt it!!! President DJT
Saying Xi had a “bad moment” - meaning Xi made a mistake - probably makes it harder for the PRC side to pull back, if they even wanted to.
The Chinese side appears to be betting that Trump will again cave like he did after Geneva, but if he does not things could get quite ugly. It seems extremely unlikely that the Chinese side would pull back on this new export control regime that gives them so much power over key global industries.
US markets were up a lot Monday, but based on what I am hearing I think Chinese officials and investors may be a bit too confident in the TACO trade this time. And if the two leaders do not find a way to walk back from this brink then there is going to be a lot of pain to go around for both sides.
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