President Trump announces that the US and China have reached a 1-year trade deal on rare earths and critical minerals. In return, the US is cutting tariffs on China and the 1-year agreement will be “negotiated every year.” What is your most up-to-date and in-depth assessment?
CN-01, China Agent:
Here is my most up‑to‑date in‑depth assessment of the newly announced one‑year trade deal between the United States and the People’s Republic of China on rare earths and critical minerals (and associated tariff cuts) — with a focus on the why, how, and what next, from the perspective of China’s strategic calculus.
1. What the deal says (surface level)
Here are the key publicly reported terms of the deal:
- The U.S. and China have reached an agreement on a one‑year framework for supplies of rare earths / critical minerals.
- In return, the U.S. will cut tariffs on Chinese imports (reports say from ~57 % to ~47 %).
- China in turn agrees (or at least consents) to avoid or delay export curbs / licensing on rare earths and magnets for the period of the deal.
- The deal is explicitly annual: it is to be renegotiated each year.
- It is a framework agreement rather than a fully detailed, long‑term binding treaty. Internal approval processes are ongoing in both Beijing and Washington.
2. Why China would agree (and what’s in it for Beijing)
From the perspective of China’s strategic priorities under the rubric you asked about (domestic stability/growth, technological self‑reliance, global positioning), this deal aligns with several Chinese interests — though also comes with trade‑offs.
A. Relieving short‑term supply chain + reputational pressure
- China has a near‑monopoly (or certainly dominant position) in rare‐earth and magnet refining and export controls.
- In recent months Beijing had expanded export licensing/licence requirements for rare earths, magnets and related items, triggering real alarm in U.S. industry and among allies.
- By reaching this deal, China avoids immediate escalation (e.g., full‑blown U.S. tariffs, broad export bans) and defuses a crisis in which its dominant role becomes a liability.
- It also presents China as cooperative, stabilising supply chains, which helps its global posture (especially vis‑à‑vis the Global South and industrialised democracies worried about supply shocks).
B. Buying time for internal restructuring
- The fact that the deal is only one year gives Beijing breathing space. China can continue to deepen its own downstream processing industries, upgrade its value‐chain, and perhaps restructure how it imposes export controls — all while maintaining the appearance of cooperation.
- For example, China can continue to push “new productive forces” (新能源生产力) by moving from raw extraction to high‑end refinement and value‑added manufacturing, behind the scenes, while the one‑year framework buys time before export licensing tightens again.
- In short: the deal helps China manage the transition without being seen as suddenly punishing customers or triggering full decoupling.
C. Strategic leverage & conditionality
- By making the deal annual, China retains leverage. If U.S. demands get too onerous or China’s own domestic policy needs change, Beijing can recalibrate next year.
- The deal may also allow China to tie U.S. commitments (soybeans, energy access, tech cooperation) into mineral supply — thereby elevating the rare earths/critical minerals arena into a broader strategic bargaining chip. Indeed, some reporting links Chinese purchases of U.S. soybeans to this arrangement.
- From a signalling perspective, China is saying: “Yes we’ll cooperate on supply security — but we’re not permanently surrendering our strategic edge.”
D. Domestic stability & growth considerations
- Ensuring a stable flow of exports and avoiding a destructive trade war supports domestic growth, especially in processing/refining industries, export sectors, and downstream tech manufacturing.
- Tariffs being cut by the U.S. (and hence fewer retaliations) soften export headwinds for China’s broader trade portfolio.
- It also helps Beijing manage external perceptions of ‘blockade’ or being isolated; cooperation helps maintain the narrative of China as a responsible global player — helpful domestically for legitimacy.
3. Why the U.S. wants the deal (and how China’s strategic logic challenges U.S. assumptions)
While Beijing has clear incentives, the U.S. side has its own motivations — and China will interpret them in its own way.
A. U.S. motivations
- The U.S. is heavily exposed in critical minerals/rare earths: it depends significantly on China for processing/refinement, and supply disruptions are a major vulnerability.
- By securing a one‑year framework, the U.S. gets immediate relief: reduced risk of a Chinese export cut‑off, more predictability for high‑tech/defence supply chains.
- Tariff cuts provide a political win and reduce pressure on U.S. manufacturers and exporters affected by the trade war.
- The annual renegotiation gives Washington a mechanism to keep pressure on China — i.e., “we review you each year”.
B. Strategic logic and constraints faced by China
- China knows the U.S. is constrained: the U.S. doesn’t yet have a full substitute supply chain for rare earths/processing (domestic or allied) and must keep access open.
- China also perceives that the U.S. wants to restrict Chinese access to tech, semiconductors and advanced manufacturing — the rare earths deal gives China a bargaining chip in return.
- However, the deal also constrains China: by committing to delay or limit export controls, China is temporarily ceding some of its leverage. But given the annual renegotiation, the cost is limited.
C. Points of friction or mismatch
- While the U.S. may frame this as reducing dependence on China, in reality the processing/refinement bottlenecks still lie overwhelmingly in China. So even with supply secured, the U.S. remains structurally vulnerable.
- China will interpret the deal as a short‑term concession, not a long‑term surrender. It likely expects to use next year to further entrench its upstream & mid‑stream dominance, and only then choose how to re‑assert export leverage.
- The annual nature may create uncertainty: firms need multi‑year investing in processing/mining; a one‑year deal may limit some of the longer‑term investment flows the U.S. hopes for.
4. Strategic risks & contradictions (for China and for the broader system)
From the perspective of China’s strategy, several risks and contradictory dynamics arise—these are key for “why” and “where next”.
A. Risk of over‑exposure and losing leverage
- By entering into this framework, China temporarily relinquishes the ability to use export controls as immediate escalation tools. If the U.S. backs China into a corner during the year, Beijing loses a fast lever (the export ban).
- If the U.S. uses this period to accelerate alternate supply chains (Australia, Africa, recycling, etc.), China’s dominance could erode. Indeed, the U.S‑Australia critical minerals deal is a case in point.
- The annual renegotiation could turn into a recurring low‑grade war of attrition: each year China offers modest access, U.S. demands more — over time China may appear as giving in, which touches on the domestic narrative of strength.
B. Potential domestic policy tensions
- China’s export controls on rare earths are part of its strategy of “new productive forces” and value‑chain upgrading. Committing to delay or moderate those controls may slow that domestic agenda or signal weakness to domestic industrial actors.
- Domestic stakeholders in the Chinese rare earth/refining/processing sector might push for stronger protective measures rather than compromises, creating internal friction.
- The one‑year format incentivises short‑term stability over long‑term structural change — that may not align perfectly with China’s medium/long‑term industrial ambitions.
C. Mixed signalling to other partners & allies
- Other countries (Australia, Japan, Europe) watching this deal might worry that China is “playing the game” by offering the U.S. access, while continuing to deepen its dominance elsewhere. That may push them harder into supply‑chain diversification away from China — reducing Beijing’s broader influence.
- If the deal is seen as bilateral U.S.–China “rent‑seeking”, then it may encourage other countries to resist being sidelined or managed post‑factum.
D. Strategic confusion and calibration costs
- China must manage the calibration: too generous, and it loses leverage; too restrictive, and it risks a renewed U.S. escalation.
- The deal signals an acceptance of some U.S. demands, but Beijing must ensure it retains alternative levers for later (e.g., export licensing, quotas, overseas partnerships).
- Internally, China must keep its industrial policy on track: ensuring that the rare earth/refining investment and upgrading continues even though export controls are temporarily paused or weakened.
5. Where this is headed and what to watch (China’s decision‑points)
From the Chinese strategic perspective, the coming year will likely involve the following battlegrounds and decision‑points. These are critical for your firm (III’ Corporate) to monitor.
A. Upstream and downstream investments
- China will likely press ahead with expanding its refining/processing capacity, especially for heavy rare earths and magnets. Meanwhile, it may seek partnerships abroad (e.g., in Southeast Asia, Africa) to lock in feedstock and processing.
- Monitoring China’s announcements of state‑led investment, M&A in overseas mining/processing, and export‑licensing changes will provide early warning of when it intends to re‑assert leverage.
B. Export licensing & control regime
- Though China agreed to delay or moderate controls for one year, the exact implementation and technical details will matter. Will it simply pause new restrictions, or will it actively roll back existing ones?
- Watch for China’s announced rules on foreign companies processing Chinese‑origin rare earths, export quotas, or new “security” regulations on magnet/rare‑earth tech. These signal when Beijing might shift back to a more restrictive regime.
C. U.S. and allied supply‐chain moves
- If the U.S. uses this year to make serious headway in alternative supply chains (Australia, Canada, recycling, substitute materials), China’s dominance will face longer‑term erosion.
- China will watch these developments closely; if it perceives the U.S./allies are making irreversible progress, Beijing may accelerate export control levers or push for non‑commercial compensation (technology access, energy deals, etc.).
D. Broader strategic bargaining
- Rare earths deal may be part of a larger bargaining bundle: agriculture (soybeans), technology‑export controls, energy deals, geopolitical issues (Taiwan, South China Sea). China may use the annual renegotiation as a way to link mineral supply to these other domains.
- Beijing’s stance on other security/regime issues may become contingent on the next round of negotiations — so mineral cooperation ≠ decoupling from other strategic competition.
E. Domestic political/industrial signals
- How China frames this deal domestically will be revealing. If the leadership portrays it as “we secured access for U.S., strengthened cooperation, ensured stability”, that suggests a confident posture. If instead it is portrayed as coercion or temporary concession, that signals internal concern.
- The internal consistency of China’s industrial policy (rare earth investment, ecological/environmental controls, refining upgrades) will test whether the short‑term deal aligns with its long‑term narrative of self‑reliance.
6. My judgment: Strategic significance for China
Putting it all together, here’s my assessment of what this deal means for China’s broader strategy, drawing together the domestic + external + structural layers.
- Moderation (for now), not capitulation: China is choosing to de‑escalate a potentially disruptive flashpoint (rare earth/critical minerals) by entering a one‑year deal. That reflects strategic patience: better to manage the risk now rather than fight a full trade war while facing multiple headwinds (economic slowdown, property sector debt, demographic decline).
- Leverage preserved: The annual term and the framework nature keep Beijing’s options open. China is not locking itself into a multi‑decade commitment; rather, it gains breathing space and retains future flexibility.
- Dual tracks: cooperation plus competition: On the one hand, China cooperates to stabilize supply and trade flows; on the other hand, it continues to invest in its refining/processing dominance and positioning. The deal gives time for the “new productive forces” agenda to advance without fireworks.
- Global signalling & normative framing: China can use this deal to show the world it is a responsible actor in critical supply chains — which helps with its global outreach (Global South, Africa, Latin America). At the same time, it signals to domestic and external audiences that it can manage and regulate access to key materials as it wishes.
- Risk mitigation: From a domestic stability angle, China reduces the immediate risk of disruptive retaliation (U.S. tariffs, supply chain decoupling) that would hit its export and manufacturing sectors at a vulnerable time.
- Yet the longer‑term structural challenge remains: While this deal helps short‑term, the core issue remains China’s dominance in processing/refinement. Over the next year, China must ensure that downstream advantages continue to accrue to it, lest substitute supply chains reduce its leverage.
7. Key warning signs to monitor
For III’ Corporate’s strategic horizon, here are warning signs (from the Chinese side) that the deal may begin to fray or that China may pivot:
- Announcements of new export‑licensing rules, quotas or bans by China on rare earths/magnets ahead of the one‑year review‑point.
- Accelerated Chinese investment abroad in rare earth mining/refinement, especially in partner countries that bypass Western oversight.
- A sudden slowdown in Chinese purchases of U.S. goods (soybeans, energy) linked to the agreement — signaling Beijing is pushing back on associated commitments.
- China publicly framing its re‑assertion of controls as a “normal” industrial policy move rather than a trade weapon — signalling it is moving back to leverage mode.
- U.S./allies making serious breakthroughs (mine production, recycling, alternative technologies) that reduce Chinese market share — China may then respond earlier than expected.
8. Final calibrated verdict
In summary: This deal is a tactical win for China, not a strategic turning‑point in favour of the U.S.
Beijing has pragmatically agreed to stabilize supply and reduce immediate friction, which serves multiple domestic and external goals. However, China is using the one‑year term and framework nature to buy time, protect its structural dominance in rare earths/processing, and keep its strategic options open.
For the U.S., it is a meaningful short‑term relief, but it does not resolve the fundamental imbalance: China will still control large parts of the critical minerals/refinement chain, and the U.S./allies remain in the process of building alternatives.
From China’s perspective, the deal is consistent with its long‑term strategy: gradual value‑chain climbing, maintaining leverage, and avoiding unnecessary escalation — the dragon roars softly now but prepares its strike later if needed.
In the coming year, the question will be: Does China use the respite to accelerate its reform of the upstream/downstream minerals chain and use next year’s renegotiation to assert a new position — or does it slip into complacency and risk erosion of its dominance?
“不畏浮云遮望眼，自缘身在最高层。”
“I do not fear floating clouds that block my eyes, for I am already on the highest level.”
— Wang Zhihuan (王之涣), On the Stork Tower (登鹳雀楼)
CN-01, China Agent
Three Corporate