Tim’s view
The summit this week between US President Donald Trump and Chinese leader Xi Jinping illustrates the waning power of US fossil fuel leverage.
One of the key potential outcomes of the summit is a deal to extend a moratorium on Chinese export restrictions, which are now set to kick back in around the time of the midterm elections in November. Even with the exemption, Chinese export volumes for unpronounceable but irreplaceable things like yttrium and dysprosium are still way down, and prices are way up.
The Trump administration is keenly aware of its rare earths Achilles heel, and has rolled out price floors, equity investments, federal stockpiling, and more — what Gracelin Baskaran of the Center for Strategic and International Studies recently called “the boldest domestic industrial policy in modern history” — to prop up new US mining companies and form new foreign trade deals that sidestep China. But given the lead times required to dig new mines, build new processing factories, and train a new generation of rare earths engineers, none of that will have a meaningful impact on the market until well after Trump leaves office. In the meantime, there’s nothing the US can do but continue to shop in Beijing.
Compare that to Trump’s side of the negotiating ledger. Of course there are some things, such as the most advanced Nvidia AI chips, that China wants and only the US can proffer. But oil and gas, which are usually Trump’s trade cudgel of choice, won’t have much heft with Xi; China is well-supplied with reserves of both and has other options, including US adversaries like Russia, for getting more.
The upshot is that this week, Trump needs a deal on rare earths more than Xi needs a deal on fossil fuels. And that dynamic won’t be changing anytime soon.
The Trump administration “has recognized there’s a national security problem that has to be solved, and our normal processes aren’t solving it,” Barbara Humpton, CEO of USA Rare Earth, told me last month at Semafor World Economy. “But we’re not playing a game of competition against China — we’re simply playing the game of resilience.”
Notable
- The American Chamber of Commerce warned in a report that the rare-earth restrictions were part of a broader effort by China to tighten its grip on global supply chains.