BEIJING: After stepping back this month from an escalating and dangerous war of tariffs, the United States and China are now threatening to undermine their uneasy truce.
On May 12, the countries announced after weekend meetings in Geneva that they would suspend most of their recently imposed tariffs. Since then, however, both governments have shown that they are still prepared to wield controls over critical exports as weapons against one another, with moves that are potentially even more damaging to trade and global supply chains.
China has restricted its exports of rare earth magnets, which are crucial for cars, semiconductors, aircraft and many other applications. Close to 90% of the world's rare earth metals, including magnets, are produced in China.
And the United States on May 13 banned the latest semiconductors from Huawei, a Chinese electronics giant. Then on Wednesday, President Donald Trump suspended the shipment of American semiconductors and some aerospace equipment needed for China's commercial aircraft, the C919, a signature project in China's push toward economic self-reliance.
The increasing use of export controls by both countries amounts to supply chain warfare, interrupting the flow of key components that the other country must have to operate huge industries that employ large numbers of workers.
Last week, Ford Motor temporarily closed a factory in Chicago that makes Ford Explorer sport utility vehicles after one of its suppliers ran out of the magnets. In most new cars, the magnets are used in dozens of electric motors that operate brake and steering systems, fuel injectors and even power seats.
On Monday, China granted some export licenses for rare earth magnets to be shipped to the United States and Europe, according to two industry executives who spoke on the condition of anonymity to discuss a sensitive matter. But many more factories in both regions will have to close in the coming days and weeks if China does not resume full exports of rare earth metals, corporate executives and business leaders said.
"Hundreds of EU companies are impacted, and we expect that this may lead to production stoppages already this week for some companies," said Jens Eskelund, the president of the European Union Chamber of Commerce in China.
American companies are feeling the effect even more. Several companies in Europe, including Volkswagen, were granted permission by Beijing to continue procuring rare earth magnets soon after China began enforcing export controls on them in April. American companies have been juggling factory schedules, reassigning their dwindling magnet supplies to continue making their most profitable products.
A Ford spokesperson confirmed that the Explorer factory had been closed last week because of a disruption in rare earth magnet supplies, but said that it had reopened this week. Ford had been planning to not run the factory for a week anyway in the coming months, and shifted that down time to last week when the magnet supply ran short, he said.
The agreement reached in Geneva by U.S. and Chinese officials to de-escalate their confrontation over tariffs has been cheered by investors. The two sides said they would take a 90-day pause on tariffs and set up working groups of top officials to try to reach agreements on trade.
That made the timing of the U.S. Commerce Department's decision a day later to ban Americans from using or financing Huawei artificial intelligence chips noteworthy. The department contended that the AI chips were based on a prohibited export of U.S. technology, which Huawei has denied.
The restrictions were the latest in a long series of American blows aimed at Huawei, which is one of China's best-known success stories. Its hundreds of thousands of workers produce everything from cellphone base stations to autonomous driving systems for cars.
Chinese officials have reacted with growing anger at the U.S. use of export controls.
"China once again urges the U.S. to immediately correct its wrong practices, stop discriminatory restrictive measures against China, and jointly maintain the consensus reached at the Geneva high-level talks," He Yongqian, the Ministry of Commerce spokesperson, said at a news briefing Thursday.
American restrictions on sales to COMAC, a state-owned enterprise, represent a setback to the Chinese government's long-term project to shed its dependence on Boeing and Airbus. The C919 aircraft is heavily dependent on American and European components, with the company's miles-long complex of hangars and design labs in Shanghai mainly installing components from foreign companies in Chinese-built air frames.
COMAC did not respond to a phone call and fax for comment.
In a reply to questions early Thursday, Kush Desai, a White House spokesperson, said, "The Geneva agreement was a major first step towards securing a final, comprehensive trade deal with China. Discussions continue, and the administration is monitoring compliance with the agreement."
The United States has been gradually tightening export controls on semiconductors for a decade, contending that China has used American computer chip technology to improve a wide range of military hardware. Chinese government officials and industry executives have denied this, and contend that the United States is trying instead to limit China's economic development.
Two days after Trump imposed steep tariffs on April 2 on imports from China and many other countries, China imposed its own export controls on some kinds of rare earths and heat-resistant magnets made from them.
The Geneva trade agreement had also called for China to "adopt all necessary administrative measures to suspend or remove the non-tariff countermeasures taken against the United States since April 2, 2025."
But China's Commerce Ministry has contended that rare earths have military applications, and it has avoided describing its export controls as a trade countermeasure. Although most rare earth magnets are used in civilian industries, they are also essential for electric motors in advanced fighter jets and the guidance systems of intercontinental ballistic missiles.
"It is a common international practice to impose export controls on items with obvious dual-use military and civilian attribute ..
Experts in China have begun defending export controls on rare earth magnets as appropriate while the United States maintains export controls on semiconductors.
"China sees export controls on rare earths as a counterstrike to U.S. export controls on semiconductors," said Zhu Ning, deputy dean at the Shanghai Advanced Institute of Finance.
Yet if China maintains export controls on rare earths, many multinational companies may conclude that their supply chains are too reliant on China, Eskelund said. "The risk of production stoppages due to export controls will only increase calls in Europe for de-risking from China."
The question now is how much longer both sides maintain their export controls.
"It would be unfortunate if one or both sides overestimates its own leverage and feels like it needs to prove that to the other side," said Chris Adams, a former Treasury official who is now a partner at the Covington and Burling law firm.
Source Name : Economic Times