There is a larger picture behind the latest US-China trade clash, but something is deteriorating between the two powers at an alarming rate, with potentially unfathomable consequences. It’s high time for an alert. Marco Mayer interviews Francesco Sisci.
On Sunday, US President Donald Trump moved to calm fears of an escalating trade war with Beijing that would shake global markets on Monday. He had threatened to impose 100% tariffs on China’s imports by November 1 in response to Beijing’s export curbs on rare earth minerals.
Trump attempted to de-escalate tensions, stating that China’s economic troubles would “all be fine” and insisting that the US “wants to help China, not hurt it.”
The post came hours after China issued an official response to Trump, warning Washington not to resort to “threats” and pledging to “resolutely take corresponding measures” if the US proceeds.
“We do not want a tariff war, but we are not afraid of one,” the Chinese Commerce Ministry said, urging the US to address differences “through dialogue,” calling repeated tariff threats “not the correct way to get along with China.”
It’s unclear whether Trump’s statement will be sufficient to calm the markets this week. Some Chinese pundits were confident about their confrontation with the US in the past few days, arguing that the US was a “paper tiger.” Following this, some fierce warnings against China in the previous hours might be construed as a new U-turn by President Trump.
- In recent days, the tension between the USA and China seems to have increased exponentially. Yesterday, China imposed a new tax on ships of shipping companies whose share ownership is 25% American. What has happened in the past few hours?
I believe in the US Congress there is growing pressure in favor of a real, clean decoupling. There is a general situation to consider. If I were to guess, China might think this is a moment when it can bargain and gain advantages because it has leverage. America lacks the capacity to produce rare-earth magnets that are essential in almost every industrial product. But in a few years — two, three, four — the US could gain the capacity to produce rare earths. They are not rare at all; they are polluting, and someone must bear the burden of polluting locally to make them, which is indeed possible. In a few years, China might have no leverage with the US. If China can extract some advantage in bargaining, it can do so today.
That does not mean Beijing does not realize the negotiations are delicate, but it knows that in the game of tariff escalation launched a few months ago, the US stepped back. So they may think the US currently has no alternative to magnets and will back down again. In fact, an American showdown with China today could expose the US to an economic crisis, even a stock market crash. They are all short-term things that can be “digested” in a year or two. Still, the question is: is the US administration willing to risk an internal crisis for a real confrontation, even if only commercial, with China? And would the confrontation remain commercial, or could it extend? Today, these decisions are made only by President Donald Trump, and I do not think anyone is sure how he will react. In general, he was previously unwilling to incur short-term costs for potential long-term benefits. If it were the same now, Trump might back down. But even so, that would not be for free to China; it would add salt to the many wounds between the two sides.
In any case, this explosion of tension demonstrates that China has and has had a long-term plan, while the US may be more disorderly. However, the US will eventually attempt to collect if the controversy is not resolved otherwise.
- Is there a growing distance between Washington and Beijing?
Perhaps this “strategic” background was not perfectly clear in the US, or possibly America is thinking in other terms. After closing an initial deal in Madrid, the US prepared a blacklist of Chinese companies and individuals accused of trading with Russia or Iran. For the US, these were indeed two separate issues: one is a general tariff agreement, the other is reprisals for aiding in wars where the United States and China are on different sides. For China, however, it is always the same thing: commercial sanctions against its companies, regardless of the definition or the reason. At this point, Beijing reacted by imposing sanctions across the board against the sale of rare earths to US companies, even through third countries.
The state of the dispute now reveals a deep divide between countries that view their differences in entirely different ways. For China, trade is trade; everything is put on the same account. For the United States, there are “different accounting” because there are ongoing wars, and China, which helps countries hostile to the US like Russia and Iran, must be selectively punished through the companies and people involved. For this type of relationship, we are outside the norms of bilateral trade.
The question now is whether the US will accept China’s logic or, conversely, whether China will accept the US’s logic. If neither party yields to the other nor a compromise is not found, tensions will certainly escalate. But even if one side yields or a compromise is reached, the bilateral fracture will have deepened, which could make future disputes easier to escalate.
- The US identified and sanctioned 15 Chinese firms because their electronic components were found in drones used by Hamas in Gaza and by the Houthis in Yemen. The hypothesis is that they arrived via Iran. How do you view the relations between Beijing, Moscow, and Tehran at this stage?
So far, Beijing has been more cautious with Tehran than with Moscow. We know China has helped and is helping Russia’s reindustrialization for war, increasing trade and technical support ties with Moscow. By contrast, when Israel attacked Tehran, Beijing stayed more distant. There can be many calculations here. The fact that China was already committed to supporting Russia might have meant it did not want to get involved in supporting a losing cause with Iran.
It could also be that Israel achieved air control over Iranian airspace in just two days, a sign of military victory, so China did not want to back a loser. In any case, China has been more distant from Iran than from Russia. I do not see a radical change in China’s position in the near future because Iran has shown profound weakness over the past two years. Its regional allies have been eliminated one by one or pushed back. On the other hand, the Tehran regime is more solid than Moscow’s: it has endured and resists despite a significant military defeat. In Iran, the regime is built around the ayatollahs; if one falls, another replaces him. The Moscow regime is different and personal: with Putin, if he loses, it is unclear what happens to the country. From a Chinese strategic perspective, Moscow is more fragile and requires more substantial support than Tehran.
- Another front is China’s purchase of large quantities of Russian oil. Will the recent China–Saudi Arabia energy agreements reduce Beijing’s dependence on Moscow?
Actually, there has never really been a significant Chinese dependence on Russia, as evidenced by the stalled negotiations on the pipeline that would bring Russian gas and oil to China. The Chinese have not closed the deal because they have not agreed on a price. If the Chinese were dependent on Russian oil, the deal would have been closed. However, there is a Chinese strategic view of supporting Putin’s government in Russia. That is central. That said, this Chinese support so far, while necessary, has not been total. The lack of an oil deal is one example; another is the absence, so far, of direct Chinese military supplies to Russia. China has no interest in upsetting this delicate balance for now, as it could have a direct impact on its trade with the United States, the primary source of its trade surplus, which is essential to its economic growth. But if the surplus collapses, the alchemy changes, and then what happens between China and Russia, between China and Iran? Some in Beijing or Washington might then be pleased that the time of distant skirmishes is over and that the fight goes to the knives.
- What do you mean by direct military supplies from China to Russia — only drone components or more?
If it went to the knives, the whole Chinese industrial apparatus could be put at Russia’s service. But that would spark fires not only with America but also with South Korea and Japan, which feel more directly threatened by Russia and its North Korean ally. At that point, all traditional calculations would collapse.
- Does the Chinese rare-earth blockade affect the capabilities of the US military industry?
I believe so, although I don’t know to what extent or for how long. However, it is unclear whether, if there were a full blockade of current Chinese supplies today, it would prevent the US from sustaining a long-term war. It is a very delicate strategic point, and surely the US will not reveal it to us. Indeed, things would change in a few years, which opens a strategic window for Beijing.
- Do you foresee cancellation of the Trump–Xi Jinping summit as threatened by the White House?
It’s possible, although the two could have various interests that keep it from being cancelled. Xi Jinping might want to appear strong to his domestic audience and refuse the meeting. After all, his picture between Putin and North Korea’s Kim is just that. On the other hand, Trump himself might have similar interests. Peace in Gaza, without involving Russia or China, already makes him look like a strong peacemaker, and he might have less desire to pursue Beijing. Or the two might not want to inflame tensions further, seeking space and sizing each other up. It’s possible the meeting will take place, although we are on a razor’s edge. The next few days are crucial.
China depends on US imports in five crucial sectors: about 95% of advanced semiconductors, 70–80% of operating systems, over 90% of AI cloud services, 75% of commercial aviation (components), and 80% of financial transaction infrastructure. But do these imports have a medium-term impact, or are they so disruptive that they open a Pandora’s box? China’s cuts to rare-earth exports are more precise and immediate, and could cause US markets to crash tomorrow.
Moreover, China has prepared, and it may only take a few months before less efficient but acceptable indigenous substitutes are introduced. It’s unclear whether the US has stockpiles of rare earths and how long they would last. American substitution of Chinese rare earths is at least two to three years away. So the game is far from simple.
In any case, decoupling looms closer. A proof of the tension state will arrive on Monday with market openings: we will see how they react, whether they collapse, and by how much. Then we will see how the US administration reacts — whether it sustains the pressure of a potential crash, how long, and with what arguments. It could be a very turbulent week.
