Hong Kong
CNN
—
US President Donald Trump may have touted the latest trade deal between the US and China as a win for America. But it’s Chinese leaders who have walked away with an extra spring in their step.
While full details of the agreement, reached by negotiators in London last week, remain under wraps, it appears largely to restore an earlier arrangement sealed in May, which had rapidly deteriorated as mistrust and tension between the two sides spiraled.
This time around, China has learned a key lesson: the power of its leverage over the US — and how it can use that to its advantage in the months ahead.
“China feels it has more bargaining power than it originally expected,” said Liu Dongshu, an assistant professor focusing on Chinese politics at the City University of Hong Kong. And over recent months of trade tussles, Beijing has realized: “Trump is not as tough as he appeared to be.”
China’s official statements on the latest agreement have been much more muted than Trump’s, who wrote on social media in all caps that the “deal with China is done” and described how the US would get access to China’ rare earth minerals, while maintaining elevated tariffs.
But it’s clear Beijing is well aware of the optics and how its longstanding calls for “equal dialogue” with the US are now playing differently. Washington now appears to be the eager suitor wanting to engage in talks and, by China’s account, the US side had initiated the call between Chinese leader Xi Jinping and Trump that led to the London talks.
“Nations with 5,000 years of statecraft don’t fold to bullying. They negotiate as equals. And that’s the only way it works,” summarized one news host on CGTN, the English language arm of China’s state broadcaster CCTV.
The deal, which is a “framework” to implement the two sides’ previously agreed truce in May, falls well short of the kind of broad reshaping of trade ties that Trump called for as he launched so-called reciprocal tariffs against China and other countries in April.
The handshake agreement still needs final sign-off from Trump and Xi, US officials said last week, and the question of how urgently any further negotiations on a broader economic deal will take place remains unclear. The arrangement also appears to leave in place heavy tariffs on Chinese goods, a situation Beijing will want to change in the months ahead.
On Thursday, the Commerce Ministry said it was accelerating the review process for rare earths export licenses, while the country’s National Narcotics Control Commission separately placed nitazenes, a new group of synthetic opioids, and a dozen other chemical substances to its list of controlled drugs. Trump began imposing tariffs on China in February on the grounds that it had failed to stop the flow of illegal fentanyl, *an opioid,* into the US.
China’s bargaining chip
But Chinese leaders now know they have at least one trump card in dealing with the US administration: their country’s stranglehold on the production of rare earths, mined metallic elements that are essential for everything from cell phones to fighter jets.
Beijing had added seven of these minerals to its dual-use export control list in April after Trump ratcheted up of tariffs against Chinese goods. A subsequent plunge in the export of rare earths from China threatened industries globally, from electronics and defense to energy and automotives.
Washington thought the May 12 talks in Geneva, where the two sides agreed to dial back damaging tit-for-tat tariffs on each other’s goods, would usher in a swift resolution of the issue. But within weeks, US officials began imposing punitive measures on Beijing, including placing limits on technology sales and threatening to revoke the US visas of Chinese students, as it accused China of failing to live up to commitments to send out those goods.
The urgency felt by the US was clear, with rare earths appearing as a key focus in the Xi-Trump call. After the London talks, China agreed to speed up approvals for shipments to US companies, while the US would remove measures it imposed “when those rare earths were not coming,” according to US Commerce Secretary Howard Lutnick.
What China’s leadership can take from the episode is that, for one, “they have real leverage over the US and others through their control of critical minerals, and (two) the US is sensitive to the use of the leverage,” said Bert Hofman, an adjunct professor at the East Asian Institute at the National University Singapore and former World Bank country director for China.
“The episode since the Geneva agreement has also made clear that the US seems more eager for a deal than China,” he added.
Analysts say that the original delay in approving exports of rare earths may have been due to the Chinese bureaucracy getting up to speed with its new export regime, which requires licenses to be approved for export to any country. And even now, Beijing is widely seen as unlikely to export these goods for military uses or dismantle its export control system altogether. It’s a toolkit already well established in the US that Beijing has been building out in recent years.
“Since the US has frequently used (export controls), China has to retaliate in kind. In addition to rare earth metals, China now increasingly has more other ‘killer daggers’ that can be used to stab US companies,” said Yao Yang, a professor at Peking University’s China Center for Economic Research, who added that the two countries should negotiate rules to “keep export control to narrowly defined fields.”
So, while China’s economy remains vulnerable to the economic pain of hefty tariffs and the reality of being cut off from US high tech products, it’s clear it too has powerful ways to fight.
The Trump card
As Chinese policymakers look ahead to future negotiations with the Trump administration, they’re also likely seeing the US president himself as a wildcard that could skew to Beijing’s advantage.
The Wall Street-originated acronym TACO, or Trump Always Chickens Out, has made it into China’s online discourse. And in Beijing’s eyes, that reputation – which Trump earned for changing tact swiftly on core trade policies and calling it a negotiating tactic – could give China room to maneuver.
That’s especially if the US aims to drive toward a more sweeping reset of US-China economic ties. That could include demanding more access for American firms to China’s markets and purchasing agreements from China.
“(Trump) changes his mind too frequently, (and) that’s no good for serious negotiation,” said Wang Yiwei, director of Institute of International Affairs at Renmin University in Beijing. “The Chinese understand his psychology and his characteristics … a grand deal in his term — there may be no time.”
Meanwhile, the American president has long shown admiration for Xi, describing him (in all caps) as “very tough, and extremely hard to make a deal with,” in a social media post ahead of their phone call earlier this month. After the London talks, he said the two would “work closely together” to open up China to American trade. On Monday, Trump suggested that it wasn’t “a bad idea” for China join the Group of 7 advanced economies, when asked by a reporter.
For Beijing, “any opportunity to present the Chinese leader as the peer of the US president is warmly welcome,” said Yun Sun, director of the China program at the US-based Stimson Center think tank, pointing to China’s interest in a summit between the two this year. “It is a matter of prestige, and the optics of China as a great power and Xi as a great power leader.”
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What’s next
Optics aside, China does not see current negotiations at an end. It has emphasized that the latest talks are part of a broader ongoing mechanism for dialogue. And even as Trump has called talks a “done” deal, broader economic and trade issues long raised by the US remain unresolved.
US tariffs on Chinese goods remain high at some 55% per Trump’s summary, a figure that includes pre-existing duties and the 20% tariffs Trump placed on China earlier this year in retaliation for its alleged role in the global fentanyl trade, according to the White House.
In comparison, Trump said on social media that China’s tariffs on the US will be set at 10%, though it was not clear if that figure was just noting new tariffs since April, as Beijing too has previously imposed duties on US goods, including in retaliation for the fentanyl levies. Chinese officials have not disputed the characterization of the deal when asked by reporters.
Chinese leaders will want to further reduce those US duties and do what they can to reduce US barriers to high tech exports to China. Beijing’s decision this week to add more chemical substances to its control list appears to be a gesture to the US that it is making progress on regulating newer fentanyl-like drugs precursors.
Yao in Beijing said Chinese policy makers are likely still aiming for a broader agreement, which could “include tariffs, export control, market access and the exchange rate.”
“The Chinese leadership has already expressed its views: If the US picks a fight, we will fight back decisively; if the US wants to talk, we are ready to talk. But the leadership is also clear that the purpose of the fight is to negotiate,” he said.
CNN’s Joyce Jiang contributed to this report.