The misleading truce
The truce reached by Washington and Beijing last year in their escalating trade conflict, which has been extended until next January, lowered the heat by ending the escalation of tit-for-tat tariffs. This agreement opened a door to an as yet undefined future trade deal. I find the resulting sense of calm misleading. Neither China nor the US has done anything to establish the mutual assurances that could limit the outbreak of new hostilities. Both sides focus on gaining the upper hand in a standoff that both have defined as a national security priority to ensure economic, technological and military supremacy.
The conflict has breached the bounds of its initial rationales. US restrictions on tech exports, investments and technology transfers to China have proliferated over the last five years. These restrictions hit China’s military capabilities and slow its technological progress. Trump also continues his deployment of tariffs. Fears of new tariffs flare up when the US president threatens to end US trade with countries with which it has a deficit unless the Federal Reserve cuts interest rates. China responds by leveraging its dominance over the supply of critical minerals essential for high-tech industries. Last year, China throttled exports of rare earths and magnets to retaliate against US efforts to restrict China’s access to high-end semiconductors and the lithography machines needed to make them.
Supply chain competition
The US and China focus on ensuring the resilience of international supply chains to constrain the technological progress of their rivals. Jake Sullivan articulated the American goal to limit China’s access to a narrow set of advanced technologies with military applications by building a "small yard" of forbidden tech surrounded by a "high fence" of trade and investment controls. China’s approach follows a different logic, as Xi Jinping called for the nation to "tighten international production chains’ dependence on China" to form a deterrent against foreigners. I find this competition makes interdependence a vulnerability rather than a tool for peace.
The economic consequences of these competing strategies are massive. If China blocks access to rare earth magnets for the US and Europe, the International Energy Agency estimates the cost could reach $1.5tn per year. The Trump administration is currently pouring hundreds of millions into projects to mine and process rare earths to close China’s lead. The administration also doubles down on efforts to limit China’s access to frontier semiconductors and bar China from buying the machinery needed to make them. China has announced high-tech export restrictions covering artificial intelligence chips and solar power technology. China also threatened to punish countries that work to reduce their dependence on its mineral inputs. China will likely dominate renewable energy technologies, especially the solar power industry, and the electric vehicle industry into the foreseeable future. Because American fighter jets, submarines, and missiles use rare earth magnets, a Chinese blockade would impact US military readiness.
