Is China Beating Trump?

From the New York Times, I'm Natalie. Kitrov. This is the daily. [music]. [music]. President Trump's trade war against. China has so [music] far proven much. harder to win than his administration. ever let on. [music]. And it's only getting worse as China. undertakes its most aggressive act of. retaliation to date.

Today, [music] my colleague Keith. Bradshshire on a potential turning point. in the standoff as President Trump meets. this week with Chinese leader Xi Jinping. [music]. and what will be their first talks since. the trade war began. [music]. [music]. It's Wednesday, [music] October 29th.

Keith, I think a lot of us, frankly, started to feel as though this trade war. may have finally died down. I think we. were lulled perhaps into a false sense. of calm when there wasn't that much news. on this for months. But then all of a. sudden, things seemed to heat back up. again. So give us a sense of the state. of the relationship right now.

>> The relationship is at one of its. tensest moments in years. Both sides. have threatened measures bordering on. economic warfare against each other. There's an urgency to resolving these. issues at the meeting on Thursday in. South Korea between the two countries. top leaders. Here in Beijing, everyone. is watching to see can they reach some. kind of a deal that pulls both countries. back from the brink.

>> And what are the main sticking points. right now in these negotiations? Like. what do we expect to come up in that. meeting? >> The United States wants China to start. buying soybeans again. China has a. boycott against American soybeans right. now because of its unhappiness with. American policies. The United States. wants China to stop shipping the. chemicals that are used in Mexico and. Latin America to make fentanyl.

China wants the United States to allow. it to buy any kinds of semiconductors it. wants, including some of the most. advanced semiconductors used in. artificial intelligence and high. performance military systems. And China. in particular wants America to distance. itself from Taiwan, although America depends enormously on. Taiwan for semiconductors. But hanging over all of these issues. is a big debate over rare earth metals.

China is threatening to cut off much of. the world's supply and it's saying that. it will block any effort outside of. China to manufacture rare earths and. rare earth magnets in competition with. China. Can you just unpack what exactly. China did because this was something. that I think a lot of people were. talking about as a major escalation. There were new restrictions right on.

these rare earth minerals. These are. critically important to you know. everything from missiles to cars. We. need them and China was saying you can't. have them. What exactly happened? >> Rare earths are very important these. days. They are used all over the economy. whether it's cars, computer chips, fighter jets, missiles. China controls. the materials, rare earth metals for. making them anywhere in [clears throat]. the world. And it has put already in.

April some export controls on supplying. those materials. And on October 9th, China said, "We're going to put a lot. more restrictions on these." [music]. China is expanding its restrictions on. rare earth's exports. The new rules do three things. One, they. prevent the West from being able to. build its own mines [music] and. refineries and magnet factories, or at.

least they make it much more difficult. for the West to do that. So, no more using any Chinese patents. without permission. No more buying. equipment from China to do any of this. And China makes almost all the equipment. for mining and refining rare earths or. making magnets. Second, the new rules put restrictions. on what you are allowed to move across. any country's borders if it has Chinese.

magnets and rare earths inside [music]. it. And third, China is saying for the. first time that it's going to restrict. even more kinds of rare earths than it. did the first time around last April. And so this will affect even more. military production, [music]. for example, making it hard for Europe to build. weapon systems for Ukraine or for Europe. to protect itself against Russia. [music].

>> Mr. Trump just announced a 100% add-on. tariff to China for their export. controls on rare earths. [music]. >> And look at this selloff. >> tonight. The stock market plunging. nearly 900 points at the close. >> This is China versus the world. They. have pointed a bazooka at the supply. chains and the industrial base [music]. of the entire free world. And that's why. Treasury Secretary Scott Bessant said. that these new rules are a bazooka aimed.

at the entire world's supply chains. [music]. >> And you know, we're not going to have. it. >> I have to say for me, this is like a. control freaks approach to trade. restrictions. Is this normal? Like do. countries typically make their trade. rules this specific, this indepth so as. to control every aspect of how a product. is used? >> The United States has done this with the.

fastest semiconductors. So about the top 3 to 5% of the world's. semiconductors do have these very. restrictive rules from the United States. that do track what downstream products. they are later built into. What is new and different about China's. rules. is that China is putting the. restrictions on a raw material. and then saying that products that are.

later manufactured from that raw. material are also restricted. So in a. way this is a combination of the US. rules on semiconductors. combined with the Arab oil embargo in. 1973 against the United States and its. allies which was aimed at halting. American support for Israel at the time. So it is both a high-tech restriction. and in China's case it is now also a raw.

material restriction both at the same. time. Can I ask Keith, do you agree with. Bessant's assessment that this is China. pulling out a bazooka? >> I really do. This is China trying to. make sure that it controls global. commerce and can turn on and off the. taps, not just for goods leaving China, but for goods moving across Europe, across North America, across South Asia,

you name it. This is seeking a new. global level of comprehensive. control out of Beijing by the Ministry. of Commerce. >> And how should we interpret the fact. that China's decided to do this now? Is. that a sign that the Chinese government. has kind of reached a point of no return. in these negotiations that they're using. what sounds like one of their biggest. points of leverage? China has concluded.

that it benefits from taking very strong. stands. towards Trump and also towards Europe. This is a China that is not allowing. itself to be pushed around. We've now. seen top Chinese leaders line up with. the leaders of Russia and North Korea at. military parades twice in six weeks in. Beijing and then in Pyongyang. And so, China has really in some ways.

embarked on a new geopolitical stance. and a new economic stance of standing. tough against the West to protect. China's strategic interests. >> and for the rest of us, for the rest of. the world, what are the implications? >> For the rest of the world, this could be. extremely damaging. Any country with an. advanced manufacturing sector has to be. really worried about this.

[music]. [music]. [music]. We'll be right back. Let's talk about what you mean, Keith, when you said this could be extremely. damaging. Spell out for me what kind of. damage we'd be looking at in the US with. these restrictions.

>> There is the immediate damage of. American companies continuing to have. trouble getting enough rare earth. magnets just to make their day-to-day. products. Detroit has been struggling to. get enough brake motors, steering. motors, power seat motors, all these. different systems that require rare. earth magnets. And as more of these. Chinese regulations from October 9th. take effect, it will become even harder.

for American companies, for example, even to move parts across the border. from Mexico or across the border from. Canada. >> What about the national security. implications of this? because you've. told us rare earths go into missiles, go. into a ton of military equipment. >> The West is already having trouble in. slowing down production of some military. items because of the shortage of rare. earths. The West failed to stockpile these rare. earths in advance. And so the military.

contractors trying to supply Ukraine or. trying to rebuild inventories in the. west are really having trouble procuring. the magnets they need. So this is a big. win for Russia because the West really. needs these rare earths to continue. supplying military equipment to Ukraine. to defend itself. And now that supply.

has been cut off cold by China. >> Fascinating. This clearly [snorts] has. pretty big consequences for Europe, which is honestly kind of surprising. I. thought this was a US China trade war. Why is China now putting the screws to. Europe? China has a whole separate. dispute going with Europe over cars. The. European Union became very concerned. last year that China had subsidized the. development of electric cars and was.

going to flood the European market with. electric cars. And so the European Union put tariffs in. place and there was a big loophole left. in these tariffs which is that if you. put a tiny gasoline engine in along with. a great big electric system in these. cars then you don't pay any tariffs at. all. And so China has been flooding the. European market, particularly this year, with exactly that category of highly.

capable electric cars with a tiny. gasoline engine included. And they don't. face any extra tariff. China does not want Europe to raise the. tariffs. It does not want Europe to. close the hybrid loophole. So China is. putting a lot of pressure on Europe. And. then finally, China's leaned towards. Russia on the Ukraine issue. China wants. Europe to distance itself from the. United States in NATO. So, China has a.

lot of incentives to. be very tough with Europe and has been. very tough with Europe this year. >> Listening to you, Keith, I have to say. it does seem as though China has the. ability to inflict just enormous pain. with this. If China is willing to go. this far in the trade war, it does seem. fair to say that they have the upper. hand. Am I wrong about that? >> Short-term, China does have a very.

strong position, but there are real. long-term dangers to the Chinese economy. in pursuing this strategy. Hm. >> So many multinational companies have. come to rely on China for part or all of. their supplies of many components, many. products that you see in stores all over. the United States. And as China shows. that it's willing practically overnight.

to halt these supplies, China is. damaging its reputation as a reliable. supplier. European and American. companies are frantically searching for. ways to buy more from Southeast Asia, from India, and from elsewhere. >> So, there is a long-term interest in. China in not taking this too far. In. fact, it's already gone far enough that. they are worried in China that they may.

be losing their appeal as a destination. for foreign investment. Who wants to. build another factory in China if you're. not going to be able to send the goods. from that factory out of China? >> It's interesting. It's like China in. trying to show the world, look, you. really can't live without us. You can't. live without our rare earths. Beijing. may actually be spurring the world to. look for ways to live without it, to.

find a way to reduce that reliance on. China for just about everything. That is. exactly right. China is not backing down. in any way. China is all in on. restricting rare earths. That's a risky. position to be in when you're a country. like China that lives on exports even as. the domestic economy is a mess. So, China may have overplayed its hand. But. it seems equally possible, plausible.

even, that the US actually overplayed. its hand because it's forced China into. this point of no return where now it's. pulling out the big guns, where now it's. using its biggest point of leverage and. forcing everyone into a corner. It's possible the US has overplayed its. hand, but the US is in a very difficult. position. because China has enormous overcapacity.

of factories. And just last Thursday, we. had a pivotal moment. The central. committee of the entire Communist Party. said, "We're going to double down on. manufacturing. We want to be the country. that makes everything.". And that is a direct challenge to the. United States and Europe which still. have some manufacturing sectors and to. Japan and to South Korea. This emphasis on making practically all. kinds of advanced technology is really a.

worry. And so the United States is on. the spot now. Does it take a short-term. strategy of. accepting a deal that gets it back to. where it was at the start of the year. but risks further deterioration of. what's left of the American. manufacturing sector or does it continue. to have a confrontation but that could. be very painful? >> So are you saying it's possible that the. US overplayed its hand but it had no. other option? The US was not in a good.

position to begin with and the Biden. administration had struggled with the. same issue. The Biden strategy was to. proceed cautiously and avoid an outright. confrontation unlike Trump. But the. Biden administration also had the. weakness of not really slowing down. China's remarkable race towards. dominance of an extremely wide range of. manufacturing industries. And so the.

Trump administration felt a need to go. considerably farther and that has now. triggered an outsized response from. Beijing. You're sort of saying it's like. you're damned if you do, you're damned. if you don't. If you don't go hard. enough to try to combat China's. dominance in manufacturing, nothing. actually gets done about it. But if you. do go too hard, you risk eliciting this. kind of really potentially damaging.

retaliation. >> That's exactly right, Natalie. But has. all this poking of the bear that the. Trump administration's done actually. done anything to slow China's. progression toward the most dominant. superpower manufacturing country that. we've ever seen? >> Yes, the Trump administration tariffs. have resulted in a significant drop in. Chinese exports to the United States,

more than 20% this year compared to last. year. On the other hand, China has been. ramping up exports to other countries. such as Vietnam, and you get estimates. that as much as 85% of China's exports. to Vietnam then end up in the United. States. So, Chinese exporters have been. very nimble in finding alternative. routes through countries like Vietnam. and Mexico to still reach the US market. But the Trump administration felt it. needed to do something because the US.

industrial base has been rapidly. hollowing out. And without a strong. manufacturing sector, the US cannot. remain a strong country with a strong. conventional military that can protect. not only the United States but other. democracies around the world. The situation you've described is one. where the stakes are just incredibly. high for both sides. So at this meeting.

between Trump and she this week, what. should we expect to see? Do you expect a. dramatic announcement or just the. continuation of what we've seen before, which is incremental agreements, temporary pauses, etc.? I expect a dramatic announcement. of temporary agreements and incremental. changes. [laughter]. [snorts] I think that what we will see. is a postponement, for example, of.

China's rare earth restrictions, but not. a repeal of them. I think we are likely. to see some Chinese purchases of. American soybeans, but not on a scale. that they previously were. One other aspect that we'll probably see. is some kind of Chinese promise to limit. exports of chemicals used in making. fentinel. [music]. And then we may see a promise to get. together and have a more indepth. conversation in China next February.

>> So a narrow deal perhaps announced with. great fanfare. [music]. >> Exactly. The two count's leaders might be able to. establish a floor for the relationship. here. They might begin to change the. trajectory so that next year they can. begin to patch together something. better. Because if they don't, then we could be. headed for ever greater confrontation. between two superpowers with enormous.

ability to harm each other and the. entire world. >> [music]. >> Well, Keith, thank you. Thanks for. making us all smarter in anticipation. [music] of it. >> Thank you. Always good to talk to you, Natalie. We'll be right back.

Here's what else you should know today. [music] Hurricane Melissa made landfall. on Tuesday and it carved a path of. destruction across Jamaica as one of the. strongest category 5 storms on record. [music]. It wasn't clear exactly how much damage. Jamaica had sustained because of limited. communications, but Jamaican officials. said that [music] 15,000 people were in. government shelters. More than half a million people or about. a sixth of the country's population. [music]. were without power.

And on Tuesday, Defense Secretary Pete. Hgsith said the Trump [music]. administration had launched yet another. round of deadly strikes on boats [music]. that it claims were smuggling drugs, killing 14 people in four vessels. Hegath said the [music] strikes took. place in international waters and that. there had been one survivor. The attacks. bring the overall death [music] toll in. the growing US military campaign off the. Central and South American coasts to 57.

[music]. Finally, Prime Minister Benjamin. Netanyahu ordered [music] the Israeli. military to conduct strikes in Gaza on. Tuesday. The Israeli government accused. Hamas of violating the ceasefire. agreement [music] by firing on Israeli. forces and failing to return the bodies. of dead hostages. Netanyahu's office said the [music]. prime minister had informed President. Trump before the action was taken. Hamas.

denied involvement in an attack on. [music] Israeli forces and in a. statement said it remained committed to. the ceasefire agreement [music]. which it accused Israel of violating. [music]. Today's [music] episode was produced by. Mary Wilson and Ricky Nevetski. It was. edited [music] by Lisa Chow. contains original music by Dan Pal,

[music]. Marian Lozano, and Pat McCusker and was. engineered by Alyssa [music] Moxley. [music]. [music] That's it for the Daily. I'm. Natalie Kitroof. See you tomorrow.