Beijing and Washington lift export restrictions on key products

Beijing and Washington are following through on an agreement struck last month in London to lift restrictions on exports of items essential for industrial production, as both sides look to cool a global trade war.

“The Chinese side is examining and approving applications for export licenses for eligible controlled items in accordance with the law. The U.S. side has also taken corresponding actions to cancel a series of restrictive measures against China, and the Chinese side has been informed of the relevant information,” a Chinese Commerce Ministry spokesperson said in a statement Friday.

Those “eligible controlled items” are an implicit reference to rare earths — metallic elements essential to both civilian and military technology manufacturing. Beijing holds a near monopoly on the global supply of those critical minerals and has imposed export curbs on 11 such minerals since December.

The list of items that the U.S. had lifted export curbs on included aircraft engines, semiconductor design software and ethane, the statement said. Reuters and CNN reported this week that Washington had given a green light for a resumption of shipments of those items to China.

Background: The resumption in exports of key products signals Beijing and Washington’s desire to maintain a fragile truce in a tit-for-tat trade war that in April resulted in tariffs in excess of 100 percent from both sides. The Trump administration reduced those tariffs to 55 percent last month while China trimmed its levies on U.S. imports to 10 percent as the two sides negotiate a wider trade agreement.

But the willingness of the two sides to weaponize nontariff barriers — including widening limits on shipments of certain chemicals and software to China and Beijing’s embargo on rare earth exports — poses an ongoing threat to industries in both countries.

Big picture: The move to restore bilateral trade of key tech and minerals is good news for industry and markets. But the durability of those exports is vulnerable to any future flare-up in U.S.-China tensions.

Beijing’s dominance of the rare earths supply chain is of particular concern to the U.S. defense industry, which requires China-supplied minerals to produce everything from munitions and precision weaponry to military night vision equipment.

What’s next: An agreement on limitations of export restrictions is likely a key agenda item in ongoing efforts to broker a wider U.S.-China trade agreement. But it’s uncertain whether Beijing will surrender its advantage in rare earths supply, given that the U.S. is years away from developing reliable domestic sources of those critical minerals.