Trump to add 100 percent tariff on China in response to rare earth export restrictions

Trade war tensions between the US and China are escalating again, ending months of an uneasy truce.

Beijing said Thursday that it would restrict its exports of rare earths. The following day, US President Donald Trump said he would impose an additional 100 percent tariff on imports from China beginning Nov. 1.

That would bring US tariffs on China to 130 percent, nearing the 145 percent rate Trump imposed in April before the US agreed to shelve them while China paused its retaliatory duties.

The latest tariff is an effective ban on China's exports to the US.

Trump said that the US would also put export controls on critical software.

China's Ministry of Commerce said "we do not want it (the trade war) and that "if the US persists in its own course, China will resolutely take corresponding measures."

Trump said that there appears to be "no reason" to go ahead with a plan to meet Chinese President Xi Jinping at the Asia-Pacific Economic Cooperation summit in South Korea.

Trade conflict between the US and China seems to be sinking into a vicious circle of retaliation, and a fierce confrontation between the two superpowers will inevitably cause a big stir in the global economy. Their clashes have unsettled financial markets, with stocks plunging in New York and Europe. Some warned that recession and high inflation might befall the world economy at the same time.

Neither side is without room for negotiation, but reaching an agreement does not look easy. It would be politically difficult for either Trump or Xi to be the first to back down from their decisions. They are likely to hold their lines for some time.

A US-China trade war will impact the South Korean economy directly, as its industries are heavily dependent on exports and constrained by Chinese supply chains for rare earths. To make matters worse, Seoul is struggling in its tariff and investment negotiations with Washington.

Damage from Beijing's rare earth export curbs will be massive. Rare earths are critical for high-tech industries and essential to Korea's strategic industries such as semiconductors, electric vehicles and defense equipment.

China is the largest producer of rare-earth metals, mining at least 60 percent and processing about 90 percent of the world's supply. South Korea depends on China for more than 80 percent of the rare earths it consumes.

Beijing's new export curbs cover not only rare earth materials but also related intellectual property and technologies. The measures require foreign entities to obtain a license to export products containing more than 0.1 percent of domestically sourced rare earths, or manufactured using China's technology. South Korea's semiconductor, electric car and battery production could suffer setbacks.

When the additional 100 percent tariff on China takes effect, global trade will shrink, dealing a major blow to South Korea's exports.

The exchange rate of the Korean currency has already risen considerably, hovering at 1,430 won per dollar. Foreign capital may flow out, raising the volatility of the domestic financial market.

The government must review measures to stabilize foreign-exchange and financial markets while seeking currency swap contracts with the US. Korean industries must try to secure alternative suppliers of rare earths quickly and push projects to develop overseas resources.

Trump and Xi have not yet changed their minds about attending the APEC summit, so a window remains open for a last-minute agreement. Even if both sides manage to make dramatic breakthroughs, that does not necessarily mean the complete end of their trade conflict.

Seoul must keep in mind that the two superpowers' fight for supremacy could resume anytime. The risk of being swept away by their abrupt trade conflict is ever-present, so long-term response strategies are needed.


khnews@heraldcorp.com