KUALA LUMPUR/WASHINGTON, Oct 24 (Reuters) – Top economic officials from the U.S. and China are due to arrive in Kuala Lumpur on Friday for talks to prevent a trade war escalation and keep next week’s meeting between U.S. President Donald Trump and Chinese President Xi Jinping on track.
Sign up here.
The talks, due to start on Saturday on the sidelines of the Association of Southeast Asian Nations Summit in the Malaysian capital, are the fifth meeting between He, Bessent and Greer since May, shifting from European cities to a key Asian exporter dependent on both China and the U.S.
RARE EARTHS STRANGLEHOLD
Table of Contents
- 1. RARE EARTHS STRANGLEHOLD
- 2. STEPPING BACK FROM BRINK
- 3. What specific U.S.export controls are causing friction with China regarding technology transfer in Malaysia?
- 4. U.S. and Chinese Officials Clash Over Export Controls and Tariff threats in Malaysia
- 5. Rising Trade Tensions in Southeast Asia
- 6. The Core of the Dispute: Semiconductor Supply Chains
- 7. Tariff Threats and Retaliation Risks
- 8. Malaysia’s Position: Navigating a Delicate Balance
- 9. The Impact on Foreign Investment in malaysia
- 10. Potential Scenarios and Future Outlook
- 11. Benefits of Diversifying Supply Chains
- 12. Practical Tips for Businesses
The talks are again focused on China’s stranglehold over global supplies of rare earth minerals and magnets essential for high-tech manufacturing, which Beijing has used as an effective leverage point against Washington.
In April, Trump hit Chinese imports with new tariffs that quickly escalated to triple-digit rates on both sides, and Beijing cut off rare earths supplies to U.S. buyers, a move that threatened to halt U.S. production of electric vehicles, semiconductors and weapons systems.
Bessent and Greer’s first meeting with He in Geneva in May led to a 90-day truce, which brought down tariffs sharply to about 55% on the U.S. side and 10% on the Chinese side and restarted the flow of magnets. The terms were refined in London and Stockholm and September talks in Madrid produced a deal to transfer Chinese short video app TikTok to U.S. ownership control.
China struck back with the new global rare earth export controls on October 10, aiming to prevent their use in military systems by requiring export licenses for products using Chinese rare earths or rare earth refining, extraction or processing technology developed by Chinese firms.
STEPPING BACK FROM BRINK
But their challenge in Kuala Lumpur, analysts say, is to negotiate a return to the prior status quo to keep magnets flowing and avoid a massive U.S. tariff hike. If they fail, next Thursday’s Trump-Xi meeting in South Korea during the Asia Pacific Economic Cooperation Summit may be canceled.
“Ultimately, I’m optimistic that at this particular meeting there will be tactical decisions to sort of extend the pause,” said Dennis Wilder, a senior fellow at Georgetown University’s Initiative for U.S.-China Dialogue on Global Issues.
“Trump won’t go to the 100% tariffs. The Chinese will back away a little bit from this idea that rare earths exports to defense sectors around the world will not happen,” Wilder told an online forum hosted by the Center for Strategic and International Studies.
But the talks are less likely to dig into the core U.S. complaints about China’s export-driven economic model that prompted Trump’s tariffs in the first place, which include a long-sought rebalancing of Chinese economy towards more consumption and reducing its excess production capacity.
“We’re not able to get to that because we’ve got to ask them to buy soybeans, right?” said Philip Luck, director of the Center for Strategic and International Studies’ Economics Program. “It’s not the core issue.”
Reporting by David Lawder and Rozanna Latiff
Our Standards: The Thomson Reuters Trust Principles.
What specific U.S.export controls are causing friction with China regarding technology transfer in Malaysia?
U.S. and Chinese Officials Clash Over Export Controls and Tariff threats in Malaysia
Rising Trade Tensions in Southeast Asia
recent high-level meetings in Kuala Lumpur between U.S. and Chinese officials have revealed escalating tensions surrounding export controls, tariff disputes, and concerns over economic coercion within the strategically crucial region of Southeast Asia. The discussions, framed as part of ongoing efforts to manage the complex U.S.-China relationship, quickly devolved into pointed exchanges regarding trade practices and national security concerns. This clash specifically centers on Malaysia’s growing role as a potential hub for technology manufacturing and its implications for both superpowers.
The Core of the Dispute: Semiconductor Supply Chains
The immediate trigger for the heightened friction appears to be the U.S.’s continued tightening of export restrictions on advanced semiconductors and related technology. Washington argues these controls are necessary to prevent China from acquiring capabilities that could be used to enhance its military and surveillance apparatus. Beijing vehemently opposes these measures, labeling them as protectionist and a intentional attempt to stifle its technological advancement.
* U.S.Concerns: Preventing the flow of cutting-edge chip technology to Chinese entities involved in military research and advancement. Maintaining a technological advantage in critical sectors.
* Chinese Counterarguments: Accusations of the U.S. using national security as a pretext for economic containment. Assertions that the restrictions violate free trade principles.
Malaysia, a key player in the global semiconductor supply chain, finds itself caught in the crossfire. U.S. officials have reportedly expressed concerns that Chinese companies are increasingly utilizing Malaysian facilities to circumvent export controls, potentially through re-routing or repackaging of sensitive components.
Tariff Threats and Retaliation Risks
Beyond export controls, the specter of new tariffs loomed large during the meetings. The U.S. has been considering additional tariffs on a range of Chinese goods,citing unfair trade practices and intellectual property theft. China has consistently warned of retaliatory measures, potentially targeting U.S. agricultural products and other key exports.
The potential for a trade war escalation is especially concerning given the already fragile global economic recovery. Analysts predict that increased tariffs could disrupt supply chains, raise prices for consumers, and dampen economic growth. The situation is further complicated by Malaysia’s existing trade relationships with both countries.
Malaysia is attempting to navigate a delicate balance,seeking to maintain strong economic ties with both the U.S. and China. Prime minister Anwar Ibrahim has emphasized the importance of a rules-based international order and has called for dialog to resolve the trade disputes. However, Malaysia also recognizes its economic dependence on China, which is its largest trading partner.
* Economic Considerations: China accounts for a critically important portion of Malaysia’s exports and foreign investment.
* Strategic Partnerships: Malaysia also values its long-standing security and economic relationship with the U.S.
* ASEAN’s Role: The Association of Southeast Asian Nations (ASEAN) is attempting to play a mediating role, advocating for a peaceful resolution to the disputes.
The Impact on Foreign Investment in malaysia
The escalating tensions are creating uncertainty for foreign investors in malaysia.Companies are reassessing their investment plans, concerned about the potential for disruptions to supply chains and the imposition of new trade barriers. This hesitancy could hinder Malaysia’s efforts to attract foreign capital and diversify its economy.
Case Study: Intel’s Malaysian Expansion (2023) – Intel’s recent multi-billion dollar investment in a chip packaging facility in Malaysia was touted as a sign of the country’s growing importance in the semiconductor industry. However, the current trade disputes raise questions about the long-term viability of such investments.
Potential Scenarios and Future Outlook
several scenarios could unfold in the coming months:
- Escalation: The U.S. and China could impose further tariffs and tighten export controls, leading to a full-blown trade war.
- Negotiated Settlement: Both sides could reach a compromise, potentially involving concessions on export controls and tariff reductions.
- Continued Stalemate: The current tensions could persist, creating ongoing uncertainty for businesses and investors.
The outcome will likely depend on a number of factors, including domestic political considerations in both countries, the broader geopolitical landscape, and the ability of diplomatic channels to remain open. Monitoring trade policy, geopolitical risk, and supply chain resilience will be crucial for businesses operating in the region.
Benefits of Diversifying Supply Chains
The current situation underscores the importance of supply chain diversification. Companies reliant on single sources for critical components are particularly vulnerable to disruptions caused by trade disputes or geopolitical events.
* Reduced Risk: Diversifying supply chains reduces the risk of disruptions and ensures business continuity.
* Increased Resilience: A diversified supply chain is more resilient to shocks and can adapt more quickly to changing circumstances.
* Cost Savings: Competition among suppliers can lead to lower costs and improved quality.
Practical Tips for Businesses
Businesses operating in Malaysia or with exposure to the
