China Cancels Trade Talks, Trump Optimistic

In response to Trump's imposition of more tariffs, China responded with tariffs of its own and walked out of talks.

The Wall Street Journal reports China Cancels Trade Talks With U.S. Amid Escalation in Tariff Threats.

> China scotched trade talks with the U.S. that were planned for the coming days, according to people briefed on the matter, further dimming prospects for resolving a trade battle between the world’s two largest economies.

> On Monday, President Trump announced new tariffs on $200 billion in Chinese imports, prompting Beijing to retaliate with levies on $60 billion in U.S. goods. Mr. Trump then vowed to further ratchet up pressure on China by kicking in tariffs on another $257 billion of Chinese products.

> “Nothing the U.S. has done has given any impression of sincerity and goodwill,” Chinese Foreign Ministry spokesman Geng Shuang said at a news briefing Friday. “We hope that the U.S. side will take measures to correct its mistakes.”

> The latest exchange of tariffs, which take effect this coming Monday, brings China and the U.S. closer to a full-blown trade war.

Full-Blown Trade War

It's pretty clear a major trade war is already underway.

Merriam-Webster defines "full-blown" as "fully mature" or "being at the height of bloom".

It's possible the trade war is already "full-blown", but I doubt it. Trump said he would respond if China responded and China responded.

Thus "full-blown" can only be determined in retrospect.

White House Optimistic

Despite the fact that escalations seem inevitable and no date has been set for talks, White House Optimistic on China Trade.

> The United States is optimistic about finding a way forward in its trade dispute with China, but it does not have a date scheduled for further talks as it assesses Beijing’s response to the latest round of tariffs, a senior White House official said on Friday.

> “We have been very clear in all of these meetings about what is ... required,” the official said. “I am still optimistic that there is a positive way forward, and the president wants us to continue to engage to try to achieve a positive way forward.”

> The official’s comments came ahead of a report by the Wall Street Journal that China had canceled mid-level trade talks with the United States, as well as a proposed visit to Washington by vice premier Liu He originally scheduled for next week.

Nothing to be Optimistic About

As long as Trump is escalating trade wars against China and the rest of the world too, there is nothing to be optimistic about.

China is not about to back down and lose face.

Trump's moves are pushing China and Russia closer together and that is not such a great thing. China is pretty much the lone global supplier of rare earth elements and Russia a critical supplier of titanium.

Rare earth elements are are crucial in the manufacturing of a vast array of products including smart phones, computers, light bulbs, electric cars, wind turbines, satellites, cruise missiles, and stealth aircraft. Some elements, like neodymium and dysprosium, are highly demanded for the production of permanent magnets, which are used for sensors and motors of those products.

Rare earth elements are not all that rare actually, but a byproduct of rare earth refinement is toxic sludge, which is why countries other than China stopped rare earth refinement. It would take years for the US to develop another source is China cut off supplies.

And there is every reason to believe China would cut supply.

Rare Earth Threat

Lou Jiwei, China’s finance minister until his recent retirement and now a senior Communist Party adviser, delivered an unexpectedly strong threat to the United States in a lunch speech as reported by the the New York Times.

> Mr. Lou said that, if necessary in the trade war, China could halt exports to the United States of components that are crucial to American companies’ supply chains.

> Mr. Lou said that it would take years for American companies to find alternatives to China. “To take a step back, the United States can establish an alternative supply chain in a third country, but it takes time — what about the pain of three to five years? This is enough to cross a political cycle,” he said.

The New York Times did not pick up about the nature of that threat, nor have I seen discussion elsewhere. I immediately understood what Lou meant.

A "full-blown" trade war could easily escalate into a "full-blown" economic war, or even something far worse.

For further discussion of the rare earth and titanium threats, please see Trump Unwisely Escalates Trade War: Expect a "Rare Earth" Response From China.

Mike "Mish" Shedlock

Comments (20)
No. 1-8
Kinuachdrach
Kinuachdrach

WSJ wrote the usual stuff, "according to people briefed on the matter".

It is really tiresome for so-called newspapers to keep printing anonymously-sourced stories. The reasonable assumption is that either the leaker is someone pushing an agenda, or that the WSJ reporter made it up. Man Up or Shut Up!

"... brings China and the U.S. closer to a full-blown trade war."

Seriously? When China has been running a trade surplus of several hundred billion dollars a year for a period of years, one might be forgiven for thinking that the trade war started a long time ago.

Kinuachdrach
Kinuachdrach

Rare Earths are not rare -- but they do tend to be associated with deposits of Thorium, which is heavily regulated because of its potential role in nuclear fuel cycles. China's role as sole major supplier of Rare Earths is apparently more a function of regulation rather than geology or technology. And in a crunch, regulation can be changed.

It is not good for the world to have a sole source of key commodities (although most of us could live happily for years without another cell phone, TV set, or electric car). What if a meteor strikes the mine? If China pulls the Rare Earth supply (again, they did something similar briefly a few years ago), and it encourages diversification of supply, that will be a major benefit to the entire human population.

Of course, if China did seriously cut off Rare Earth exports (and they would have to cut them off to everyone, not just the US; otherwise, resellers would blow holes in their boycott), they would create competition and lose market share permanently. Rare Earths are a two-edged sword.

Sechel
Sechel

china will switch tactics, stop selling us strategic metals and harass u.s. businesses in china. Trump's playing high risk poker with the u.s. economy. this may not end well. Where is the Senate?

thimk
thimk

this is more of a matter to inhibit chinese global influence; kinda like a war tax. Any word of companies starting to produce products in the US because they can be more competitive ? American exceptionalism is producing diminishing returns.

pi314
pi314

Mr Lou basically stated that China could bring US economy to its knees if it wanted to. That should set off alarms in Washington.

George_Phillies
George_Phillies

Actually the United States has a developed rare earth mine with working extraction facility. Management decisions -- I was a stockholder at that time but the company is no longer there in that form -- and a drop in rare earth prices led to severe financial difficulties, and the facility was eventually purchased and mothballed safely. The current owner iirc is a Chinese firm.

lol
lol

,Trump knows China has everything to lose lol rare earth threat!!!what bout Walmart,home depot,dollar general ,lowes threat!If china can't sell that shoddy crap to Walmart or target...who's gonna buy the overpriced junk?Short answer..no one!thousands of factories close,millions of Chinese slave laborers laid off

Realist
Realist

There is no reason for anyone to negotiate a trade deal with the US while Trump is around, because he wouldn’t honour it anyway. He will renege on any deal he makes, claiming it’s not good enough. That’s because he doesn’t actually want trade deals. He wants enemies to focus his supporters anger on. It’s the politics of hate, and Trump is good at using it. He can garner votes for Republicans in the upcoming election if he can focus his supporters anger on some imagined enemy (China, Korea, Iran, Europe, Mexico, Canada, Sessions, Mueller, etc). So he keeps upping the rhetoric on everything and everyone as the election gets closer. If he ends up imposing tariffs on 500 billion in Chinese goods, it will increase prices for American consumers and businesses, but he doesn’t really care about that.