Yearning for Yesteryear, Trump Overlooks China’s Grip on Rare Earth Minerals
President Trump’s tariff policies hearken to an economy of yesteryear, not to economic realities for 21stcentury success.
His “cure” for U.S. trade imbalances is to disrupt long established supply chains critical to a wide range of U.S. businesses. His trade war with China has resulted in export controls on rare earth minerals to manufacture electric vehicles, iPhones and military hardware.
Coal was critical to Britain’s rise to power as oil was for U.S. industrial expansion. China is in the driver’s seat for rare earth minerals like nickel, zinc and lithium that are essential for next-generation economic and military superiority in semiconductors, electrical vehicle batteries and drones.
Thomas Kruemmer, author of the Rare Earth Observer blog, says China’s export controls center on minerals and processes where it has the greatest international dominance and “maximum impact on the American military-industrial complex.” China’s strongest grip, he says, is on refining and processing rare earth minerals, which would be hard for any country to duplicate quickly.
Kruemmer also says China’s rare-earth dominance will give a boost to its domestic industries, including electric vehicles, electronics and computing. China will be achieving what Trump falsely assumed he could achieve with tariffs.
[Update: Since this was posted, the United States and Ukraine reached a profit-sharing deal on Ukrainian rare earth minerals and oil and gas resources. The most recent geological survey of those resources is 50 years old and apparently the know resources are located in Ukrainian territory now under Russian occupation. There is no plan to mine or process the rare earth minerals to compete with China.]
Dream of Reshoring American Manufacturing
Trump’s tariff goal is to reshore manufacturing jobs from overseas and restore delf-dependence at home. While that may have sounded good on the campaign stump, in practice it has meant severe economic distortions to the global economy and lost business and jobs in America – and the tariffs aren’t fully in effect yet.
Even when Trump’s tariffs have had an impact, they haven’t brought jobs to the United States. Apple persuaded Trump to wave his extraordinary high China tariffs on its iPhone production. Then Apple announced it is shifting iPhone production from China to India.
Whatever economic prowess there is in real estate development doesn’t automatically convert to an understanding of manufacturing and global supply chains that support manufacturing. Wishing more white American males should work in factories won’t create an economic justification for those factories to be built or instantly replace complex supply chains that transcend national borders.
It’s worth noting Trump’s ‘Make America Great Again’ hats have been manufactured in China for nearly a decade.
Most Serious Trump Miscalculation
The most significant miscalculation of Trump’s tariff policy is igniting a trade war with the world’s second largest economic superpower. Trump assumes he has the best hand. He may not. China’s grip on rare earth minerals is a good example.
According to Adam S. Posen, president of the Peterson Institute for International Economics, “The Trump administration is embarking on an economic equivalent of the Vietnam War – a war of choice that will soon result in a quagmire, undermining faith at home and abroad in both the trustworthiness and competence of the United States.”
Posen says Trump “believes [he] has what game theorists call escalation dominance over China and any other economy with which it has a bilateral trade deficit.” Trump doesn’t think nations like China with a favorable trade surplus with the United States will retaliate.
“But this logic is wrong,” Posen says. “It is China that has escalation dominance in this trade war. The United States gets vital goods from China that cannot be replaced any time soon or made at home at anything less than prohibitive cost.”
Posen says a trade war is like a real war, not a game of poker as claimed by Treasury Secretary Scott Bessent. “Both sides get hurt in a trade war,” he says, “because both lose access to things their economies want and need and that their people and companies are willing to pay for. Like launching an actual war, a trade war is an act of destruction that puts the attacker’s own forces and home front at risk.”
Posen, along with many other economists and business leaders, challenges Trump’s basic understanding of trade. “The Trump administration believes that the more you import, the less you have at stake,” he says. “This is factually wrong, not a matter of opinion. Blocking trade reduces a nation’s real income and purchasing power.”
West Coast ports are already reporting empty containers piling up because of trade disruption.
Trump’s Tariff Negotiations
Trump’s claim as a great dealmaker is challenged by his own business record of bankruptcies and failures ranging from casinos to vodka to professional football. So far, his “negotiations” on trade deals have been unsuccessful – and possibly not even underway..
“China has ridiculed Trump, saying that there are no negotiations,” writes economics columnist Paul Krugman. “Who do you believe? This is a case of he said, Xi said. But given Trump’s long history of fantasies and delusions of grandeur, as well as Xi’s long history of being single-minded and indefatigable, I believe the Chinese.”
“Japanese trade negotiators have gone home because they can’t get any clarity on what America wants,” Krugman adds. “Among other things, Trump has berated the Japanese for testing American car safety by dropping bowling balls on them – which they don’t.”
“At some point, and soon, Trump’s fantasy of trade dominance will become unsustainable,” Krugman concludes.
The Price of Capricious Policy
“When the Trump administration makes capricious decisions to impose an enormous tax increase and great uncertainty on manufacturers’ supply chains,” Posen says, “the result will be reduced investment into the United States, raising interest rates on its debt. The U.S. economy will suffer enormously in a large-scale trade war with China.”
Columnist David Brooks says Trump has no policy process. “Trump is instinctive. He responds to the moment.”
Trump’s love affair with oil may not be shared with U.S. industry. Looking ahead to dislocations caused by climate change, many U.S. executives are shifting to renewable energy. It’s another reminder than melancholy for the past isn’t a substitute for a forward-looking policy based on reality.
Legal Scholars Challenge Tariff Authority
A bipartisan group of prominent legal scholars and former government officials has filed an amicus brief in support of legal action to challenge Trump’s power to levy tariffs.
“The powers to tax, to regulate commerce and to shape the nation’s economic course must remain with Congress. They cannot drift silently into the hands of the President through inertia, inattention or creative readings of statutes never meant to grant such authority. That conviction is not partisan. It is constitutional. And it strikes at the heart of this case.
“This dispute is not about the wisdom of tariffs or the politics of trade. It is about who holds the power to tax the American people.”
