U.S. President Donald Trump has announced that he intends to impose a 100% tariff on imports from China starting next month. This contentious decision follows a tweet where Trump also mentioned plans for export controls on critical software.
This escalation comes after China announced tightened rules for exports of rare earths, which are essential materials used in the production of numerous electronic goods and technologies. Trump accused China of 'becoming very hostile' and attempting to hold the world 'captive.'
In addition, Trump hinted at the possibility of canceling a meeting with Chinese President Xi Jinping, although later clarifications suggested that the meeting could still take place, albeit under uncertain circumstances. 'I'm going to be there regardless,' he stated from the White House.
The reaction from financial markets has been immediate and negative, with the S&P 500 index suffering its most drastic drop since April, closing down 2.7%.
China is currently the leading producer of rare earths, vital for numerous technologies, and previous restrictions on these exports have already caused disruptions for U.S. companies, notably forcing car manufacturers like Ford to temporarily pause production.
Further complicating matters, China has opened a monopoly investigation into U.S. tech giant Qualcomm, potentially stalling its planned acquisition of another chipmaker. This indicates a move towards increased scrutiny of American technological influence in China.
In response to Trump's declarations, experts believe the Chinese government sees its strategic position with rare earths as a bargaining tool. Jonathan Czin from the Brookings Institution noted that Xi's recent maneuvers are likely aimed at gaining leverage in future discussions.
While Trump and Xi were expected to engage in talks later this month during a summit in South Korea, the chances of this meeting occurring as planned seem to be diminishing. However, analysts, such as Gracelin Baskaran, suggest that negotiations remain a possibility, given that China's new export rules won’t take effect until December.
In the broader context, both countries had previously agreed to a truce in their trade war, but recent events threaten to unravel any progress made since May. The U.S. currently stands with tariffs on Chinese goods that have nearly doubled since the beginning of the year, suggesting an increasingly complex and fragile trade relationship.
