Military-use rare earth issue remains unresolved
The renewed United States-China trade truce struck in London left a key area of export restrictions tied to national security untouched, an unresolved conflict that threatens a more comprehensive deal, said two people briefed on detailed outcomes of the talks.
Beijing had not committed to grant export clearance for some specialised rare-earth magnets that US military suppliers need for fighter jets and missile systems, said the people.
The US maintains export curbs on China's purchases of advanced artificial intelligence chips out of concern that they also have military applications.
At talks in London last week, China's negotiators appeared to link progress in lifting export controls on military-use rare earth magnets with the longstanding US curbs on exports of the most advanced AI chips to China.
That marked a new twist in trade talks that began with opioid trafficking, tariff rates and China's trade surplus, but have since shifted to focus on export controls.
In addition, US officials also signalled they were looking to extend existing tariffs on China for a further 90 days beyond the Aug 10 deadline agreed in Geneva last month, suggesting a more permanent trade deal between the world's two largest economies was unlikely before then.
President Donald Trump said last Wednesday the handshake deal reached in London between American and Chinese negotiators was a "great deal", adding, "we have everything we need, and we're going to do very well with it. And hopefully they are, too".
But China's chokehold on the rare earth magnets needed for weapons systems remains a potential flashpoint.
China dominates global production of rare earths and holds a virtual monopoly on refining and processing.
A deal reached in Geneva last month to reduce bilateral tariffs from crushing triple-digit levels had faltered over Beijing's restrictions on critical minerals exports that took shape in April.
At the London talks, China promised to fast-track approval of rare-earth export applications from non-military US manufacturers out of the tens of thousands currently pending, said one of the sources.
Those licences will have a six-month term. Beijing also offered to set up a "green channel" for expediting licence approvals from trusted US companies.
Initial signals were positive, with Chinese rare-earths magnet producer JL MAG Rare-Earth, saying it had obtained export licences that included the US, while China's Commerce Ministry confirmed it had approved some "compliant applications" for export licences.
But China has not budged on specialised rare earths, including samarium, which are needed for military applications and are outside the fast-track agreed in London.
Carmakers and other manufacturers largely need other rare earth magnets, including dysprosium and terbium.
The rushed trade meeting in London followed a call last week between Trump and Chinese leader Xi Jinping.
Trump said US tariffs would be set at 55 per cent for China, while China had agreed to 10 per cent for the US.
Chinese analysts are pessimistic about the likelihood of further breakthroughs before the Aug 10 deadline.
"Temporary mutual accommodation of some concerns is possible but the fundamental issue of the trade imbalance cannot be resolved within this timeframe, and possibly during Trump's remaining term," said Liu Weidong, a US-China expert at the Institute of American Studies, Chinese Academy of Social Sciences.
An extension of the August deadline could allow the Trump administration more time to establish an alternative legal claim for setting higher tariffs on China in case Trump loses the ongoing legal challenge to the tariffs in US court, said one of the people with knowledge of the London talks.
The unresolved issues underscore the difficulty the Trump administration faces in pushing its trade agenda with China because of Beijing's control of rare earths and its willingness to use that as leverage with Washington, said Ryan Hass, director of the John L. Thornton China Centre at the Brookings Institution.
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