US-China trade

A temporary trade truce between the United States and China, announced following recent negotiations in London, has failed to address a critical strategic issue: the export of rare earth elements essential for military applications.

According to individuals familiar with the matter, the Chinese delegation did not offer any concessions on specialised rare earth magnets required by U.S. defence manufacturers, leaving a central point of tension unresolved.

The discussions, which originally focused on topics such as opioid trafficking and tariff structures, shifted sharply toward matters of national security. Specifically, China’s control over exports of heavy rare earth materials—used in components for fighter jets and missile guidance systems—has become increasingly contentious amid the broader technological decoupling between the two countries.

China continues to maintain export restrictions on certain rare earth products considered dual-use materials. During the London talks, Chinese negotiators reportedly tied any potential easing of these restrictions to the U.S. position on advanced semiconductor exports, particularly artificial intelligence chips. These chips, produced largely by American firms, are subject to export controls over concerns they could support Chinese military development.

Although both parties announced progress on several fronts, including tariff timelines and customs procedures, the rare earths issue remained unresolved. Washington, for its part, signalled its intent to extend existing tariffs on Chinese imports beyond the current 10 August deadline, possibly by an additional 90 days, according to sources briefed on the talks.

This signals that a broader and more permanent trade agreement remains out of reach, with national security considerations on both sides now embedded in economic negotiations. Officials involved in the talks have provided little in the way of public detail.

The unresolved matter of rare earth exports highlights the fragility of current bilateral trade discussions. China holds a dominant position in the global rare earths market, accounting for an estimated 70% of global extraction and an even higher share of downstream processing. The materials—such as neodymium, dysprosium, and terbium—are used in manufacturing high-performance magnets critical for precision-guided munitions, radar systems, and stealth technology.

Meanwhile, the U.S. maintains controls on high-end AI semiconductors, including those used in training complex neural networks and other machine learning systems. The Department of Commerce has argued that such technologies have clear military applications and therefore warrant regulatory oversight. Beijing views the curbs as an unjustified restriction on technological cooperation and has previously called for their removal.

Despite the apparent impasse, U.S. President Donald Trump described the interim agreement reached in London as a “great deal”, asserting that “we have everything we need, and we’re going to do very well with it. And hopefully they are too.” His remarks suggest a positive interpretation of the truce, although substantive differences clearly remain.

U.S. Treasury Secretary Scott Bessent reiterated that there would be no reciprocal arrangement linking AI chip exports to rare earth access. “There will be no quid pro quo,” he stated, emphasising that national security export controls would remain in place irrespective of Chinese concessions.

This development comes amid increasing concerns within the U.S. defence and aerospace sectors over the reliability of rare earth supply chains. While efforts have been made to diversify sources—through partnerships with Australia, Canada, and select African producers—China’s near-monopoly in refining capacity continues to present a bottleneck.