As the US and China board the battle bus of trade tariffs, they seem to share a common motto -- when you take a risk, you go all the way.
Both may well be aware that there are no winners in a trade war, and yet they refuse to give in a little. The tariff weapons are hurtling so thick and fast towards each other that the rest of the world is scrambling to roll with the punches.
What started purely as a trade war is likely to deepen into a full-blown war, with analysts reasoning how China could shore up military capabilities faster than the US. This may or may not eventually happen, but for now, the series of events seems much the same way as a fire requires fuel, oxygen, and heat, followed by a spark.
Here's a quick lowdown of what happened so far.
In a brazen dare, US President Donald Trump imposed an eyeball-blistering 145% tariffs on imports from China, to which, Beijing retaliated with its own 125% levy stressing that it isn't a weakling yielding to fate. In fact, China even drew the finish line stating that any further tariff increases by the US will be ignored. In short, its message to Trump last week was: End of matter. Move on.
But Trump being Trump, whacked China with a peak import tariff of 245%.
But wait. Even before Trump's reciprocal tariffs were to come into effect from April 9, China hit first imposing export restrictions on rare earth elements (REEs) as early as April 4, perhaps adding to Trump's source of irritation.
China is the global powerhouse for these elements, without which the world will simply cease to function. As for the US, the production of its famed fighter jets, submarines, spacecraft and others will all grind to a halt, while China can build its military capabilities at the speed of an instant noodle mix.
In response, the White House signed an executive order launching an investigation into the national security risks posed by US reliance on imported processed critical minerals and their derivative products.
It's also perhaps considering dialing back dollars from China and according to Goldman Sachs, US investors could be forced to offload as much as $800 billion of Chinese equities in an extreme scenario. Speculation is also rife about US stock exchanges delisting Chinese firms -- yet another thorny issue during Trump's first term -- fueling concerns about the once-unthinkable prospect of a financial divorce between the US and China.
In a fictional world, when two giants lock horns leading to an edge-of-the-seat thriller, one would be compelled to grab some popcorn and watch the unfolding drama. Unfortunately, this is a real-world scenario and as the US and China tear each other into portions, the ensuing chaos and economic mayhem is for everyone else to bear. It'll also end up in self-sabotage.
Clearly, the stakes are too high for both sides, but neitheris willing to bend. Truth be told, they need each other, much more than anyone else.
China exports as much as 30% of its products to the US directly and indirectly, where goods are assembled and packaged in Vietnam and elsewhere to avoid tariffs. The US too relies heavily on China for several critical commodities used in building aircraft and submarines and also everyday items like tubes, pipes and hoses.
The clash of the trade titans is likely to shift the sands of global power dynamics. Beijing has begun its outreach in Southeast Asia sending a clear message that it's not in a friendless world. In fact, Chinese President Xi Jinping's three-nation tour covering Vietnam, Malaysia, and Cambodia was strategically chosen. Each got slapped by new US trade levies and while extending a helping hand, Beijing is strengthening regional dominance, building supply chains and even tapping newer markets to do business.
The defining element of its policy success lies in the fact that despite sanctions and export controls targeting Chinese tech since Trump's first term eight years ago, China's manufacturing sector was unstoppable. It's now larger than that of the US, Germany, Japan, South Korea, and the US combined, according to estimates.
Still, Trump keeps stressing that tariffs will make America richer, bring manufacturing back to the US, create jobs and generate billions of dollars of tax revenue. But in reality, the dollar is getting whiplashed and is at the risk of losing its reserve currency status.
This raises the question whether tariffs are all they are cracked up to be and what exactly does the Trump administration wants to achieve by imposing them?
The good news is, Trump seems ready to blink. In a first, he refused to raise tariffs further on China and instead expressed a willingness to even lower levies if Beijing reaches out to him. "At a certain point I don't want them to go higher because at a certain point you make it where people don't buy. So I may not want to go higher, or I may not want to even go up to that level. I may want to go to less because, you know, you want people to buy," he said on Thursday.
On its part, China maintains that it doesn't want to fight wars, but isn't afraid of them. If the US then truly favours a dialogue, it must stop exerting 'wanton' use of force, as such tactics won't restore American greatness.
Beijing is also playing hardball given its hold on REEs, or a set of 17 elements, which are alloyed into components of everything from smartphones to electric cars to fighter jets to submarines. Modern technology simply won't work without them. Many of us have never even heard of elements like gallium, germanium, indium, bismuth, and so on, but thanks to China, they can now hold the whole world hostage.
China dominates the global output, it mines well over 70% of the world's rare earths and processes as much as 90% of the global supply. These critical elements are present in the US and elsewhere too, but production is negligible due to environmental concerns. Interestingly, the US led the world in REE production during 1950s-1980s, but China overtook the US during 1990s, and continues to dominate global production.
The current export restrictions to the US on seven medium and heavy rare earths used in defense, energy, and automotive sectors on April, 4, isn't an outright ban, but Beijing's way of having an upperhand. It first weaponised rare earths in 2010 when it banned exports to Japan over a fishing trawler dispute and prices shot up tenfold.
It wielded this weapon last year too on December 3, 2024, when China banned the exports of four rare earths with immediate effect, attacking advanced technology production in the US, bringing far-reaching implications for global supply chains, advanced technology production, and geopolitical dynamics.
