Buoyed by rare earths, China approaches Trump summit with fresh confidence

Blocks with symbols and atomic numbers of Rare Earth Elements (REE) are placed on a Chinese flag in this illustration taken Jan. 21. Reuters-Yonhap

Chinese officials have signalled privately a growing willingness to retaliate against the United States, buoyed by confidence in their economic leverage as U.S. President Donald Trump prepares to visit Beijing this week.

Sources told the South China Morning Post that officials in Beijing had grown bolder since playing its rare earths card in October and were now less worried about tariffs.

The sources, who spoke on condition of anonymity because they were not authorised to comment publicly, said Chinese officials believed Beijing had the ability to retaliate strongly and to withstand the pressure if Washington escalated.

That confidence could offer some clues as to how Beijing will approach the summit between President Xi Jinping and Trump.

In October, the two countries agreed to a trade truce that involved Washington easing certain tariffs and China resuming soybean imports and suspending some rare earth export curbs.

China dominates the global mining and processing of rare earths and, just weeks before the trade truce, it announced a sweeping expansion of restrictions on exports of the minerals.

Rare earths are used in a wide range of applications and the restrictions had acute implications for American industries ranging from electronics to defence.

Trump put back his visit to Beijing because of his war on Iran, but is now expected to arrive on May 14, according to the White House.

Sean Stein, president of the U.S.-China Business Council, said Beijing’s key message was that “China sees itself as only the victim of U.S. trade actions.”

He added that Beijing would “respond each and every time the U.S. takes a trade action or a sanction action or an investigation that it sees as somehow unfair or unjustified.”

In one sign of growing confidence, Beijing earlier this month ordered its citizens and companies not to comply with U.S. sanctions against five Chinese oil refineries accused of trading Iranian fuel. It was the first deployment of a measure designed to block “improper” extraterritorial actions.

Jeremy Chan, a senior analyst at political risk consultancy Eurasia Group, said Beijing had become increasingly confident it could react to U.S. pressure.

“By withholding rare earths, China brought the U.S. to its knees and reduced fear in Beijing of the potential for U.S. escalation over tariffs, export controls or sanctions,” he said.

“This has fed China’s new-found confidence in its bilateral interactions with the U.S. Beijing now possesses a powerful deterrent tool to prevent Trump from raising tensions again with China — the cost is simply too high for Washington.”

Chan said that confidence could make Beijing less willing to make “painful concessions” on economic and security issues, even if Xi stopped short of making major demands of Trump.

And Beijing still has cards to play. Beyond rare earths, it could restrict access to legacy semiconductors, pharmaceuticals and other industrial inputs, he said.

“China has significant and expanding leverage over the U.S., and it will probably be less afraid to use it in the future.”

Read the article at SCMP.