Highlights
- China has systematically diversified its export markets, reducing dependence on US trade while maintaining global economic significance.
- US-China trade dynamics involve complex interactions across multiple sectors, including:
- Rare earth elements
- Technology
- Agricultural products
- Strategic options for US-China relations range from:
- Collaborative negotiations
- Potential aggressive decoupling
In a recent interview (opens in a new tab) with Sean Hannity, President Donald Trump declared that the United States has something China needs badly: the “pot of gold”—the biggest economy and market for selling goods and services. But how have Chinese and American trade and dependence evolved over the past three decades? Rare Earth Exchanges points out that China has markedly diversified its economic activity. This means any assumptions on this topic should be thoroughly vetted.
The trade dynamics between the United States and China have undergone significant and profound changes, reflecting shifts in global economic patterns and China’s strategic diversification efforts. First, we look at trade volume and export values:
| Year | Summary |
|---|---|
| 2000 | In 2000, China’s exports to the U.S. were valued at approximately $100 billion, accounting for about 20% of China’s total exports. |
| 2010 | By 2010, China’s exports to the U.S. had increased to around $365 billion, representing approximately 18% of its total exports. |
| 2020 | In 2020, exports to the U.S. were valued at about $451 billion, making up roughly 17% of China’s total exports. |
| 2024 | Preliminary data for 2024 indicates that China’s exports to the U.S. were approximately $501 billion, accounting for about 14% of its total exports. |
Note the reduction in dependence on Chinese exports to America. This represents a purposeful diversification of Chinese business and export dynamics over the last three decades that U.S. policymakers must factor into unfolding strategies.
So, what are the exports composed of, and how has this changed? Throughout these years, the composition of China’s exports to the U.S. has evolved.
Rare Earth Exchanges shares a basic overview in the table below. Als,o see Trading Economics (opens in a new tab).
| Year | Summary |
|---|---|
| 2000 | Key exports included textiles, apparel, and basic electronics. |
| 2010 | The export mix shifted towards more advanced electronics, machinery, and furniture. |
| 2020 | Dominant exports encompassed electrical machinery, computers, and furniture. |
| 2024 | Leading exports to the U.S. included electrical and electronic equipment ($124.52 billion), machinery ($88.98 billion), and furniture ($30.66 billion). |
What does this diversification of China’s export markets mean?
Over the past two decades, China has actively diversified its export destinations. For example, in the early 2000s, the U.S., European Union, Japan, and South Korea were among China’s top export partners, collectively accounting for a significant portion of its exports.
However, more recently, although the U.S. and EU remain major partners, their relative importance has declined. Emerging economies in Southeast Asia and Central Asia have gained prominence as key export destinations, according to a piece in Intereconomics (opens in a new tab).
The data indicates that while the United States remains a significant market for Chinese exports, its relative importance has diminished over time, and this may contradict or at least challenge President Trump’s assumptions to some extent. Perhaps this data point represents a key input for a broader tariff-based economic plan?
China’s concerted efforts to diversify its export markets have markedly reduced its dependence on the U.S., thereby mitigating potential leverage that the U.S. market might have previously exerted over China’s economy.
The chart illustrates China’s exports by region as a percentage of its total exports in 2023:
- Asia: 46.5%, reflecting strong regional trade, particularly with nations like Hong Kong, Japan, Vietnam, and India.
- North America: 19.2%, dominated by the United States and Mexico.
- Europe: 20.7%, with major markets like Germany, the Netherlands, and the United Kingdom.
- Africa: 4.1%, showing growing engagement with emerging markets on the continent.
- South America: 3.6%, highlighting trade with nations like Brazil and Argentina.
- Oceania: 2.9%, primarily led by trade with Australia and New Zealand.
This distribution underscores China’s deep integration with Asia while maintaining significant trade ties with other regions worldwide.
What about the USA to China
Over the past three decades, U.S. exports to China have experienced significant growth, reflecting the deepening economic ties between the two nations. In 1991, U.S. exports to China were relatively modest, totaling approximately $6.3 billion. This figure saw a substantial increase by 2000, reaching around $16.2 billion. The upward trajectory continued, with exports climbing to $69.7 billion in 2010 and further to $124.5 billion in 2020. In 2023, U.S. exports to China amounted to $147.81 billion. Of course, this reflects a massive deficit with Chinese surplus ongoing reports Trading Economics (opens in a new tab).
The composition of these exports has evolved over time. In the early 2000s, key exports included aircraft, machinery, and agricultural products like soybeans. By 2023, the export portfolio had diversified, with significant contributions from mineral fuels and oils ($19.74 billion), oil seeds and oleaginous fruits ($15.85 billion), machinery including nuclear reactors and boilers ($13.72 billion), electrical and electronic equipment ($11.64 billion), and optical, photographic, technical, and medical apparatus ($11.31 billion). See Trading Economics (opens in a new tab).
Despite this growth, the U.S. trade deficit with China has remained substantial. In 2022, U.S. goods exports to China were $154.0 billion, while imports from China totaled $536.3 billion, resulting in a trade deficit of $382.3 billion as cited above. See United States Trade Representative report on WTO compliance. (opens in a new tab)
Trade policies and geopolitical tensions have influenced these dynamics. The Phase 1 trade deal signed in 2020 aimed to reduce trade tensions, with China committing to increase its purchases of U.S. exports by $200 billion over two years. As reported by Reuters (opens in a new tab), however, due to the COVID-19 pandemic and other factors, these targets were not met.
In recent years, there has been a noticeable decline in U.S. agricultural exports to China. In 2023, these exports were valued at $34.05 billion, a 20% decrease from the previous year. Commodities such as soybeans, corn, meat, and cotton have faced increased competition from countries like Brazil, Argentina, Australia, and Russia, leading to reduced market share for U.S. producers, as reported by Reuters (opens in a new tab).
Overall, while U.S. exports to China have grown over the past three decades, the trade relationship remains complex, influenced by policy decisions,global economic conditions, and competitive pressures.
What Impact of China’s Rare Earth Ban in an All-out Trade War?
If China, leveraging its control of 90% of rare earth processing and value-added production, were to block all exports of rare earth elements (REEs) and related products to the United States in a trade war, the global ramifications would be immense.
The immediate fallout for the U.S. economy would disrupt critical industries such as defense, renewable energy, and technology manufacturing. Rare earths are integral to military equipment like missile guidance systems, EV batteries, and wind turbines. A sudden cutoff would cause severe supply chain disruptions, drive up costs, and significantly slow production.
The U.S. military’s dependence on rare earth magnets would pose a national security risk, and industries like electric vehicles would struggle to meet demand, jeopardizing climate goals. Efforts to mitigate this reliance by increasing domestic rare earth processing or securing alternative supplies from allies like Australia or Canada are nascent and would take years to scale.
By some estimates, this could be a decade for full scale out.
For China, the economic impact would include a short-term revenue loss from its multi-billion-dollar rare earth export market, but the country’s diversified trading partnerships and growing domestic consumption would buffer the effects. Likewise, China may use its strength and less dependence on U.S. exports to further bolster BRICs.
China could redirect rare earth supplies to nations it deems friendly or domestic industries, maintaining its dominance in the global supply chain.
Importantly, however, weaponizing rare earths in this manner would accelerate global efforts to develop alternative rare earth sources and supply chains, potentially weakening China’s long-term monopoly. This is a moment China seeks to avoid for obvious reasons.
On the geopolitical front, such a move would escalate tensions significantly. Donald Trump’s rhetoric has historically emphasized the U.S. military and economic superiority, suggesting that in response, the U.S. might take aggressive actions.
These could include invoking the Defense Production Act to prioritize rare earth production, increasing military support for allies in the Indo-Pacific, or even naval maneuvers to secure supply chains in contested regions like the South China Sea, as discussed below.
The Panama Canal could be seized along with Greenland, regardless of its ramifications. As mentioned in previous articles, access, however, to Greenland’s REE deposits by itself is not going to help with the supply chain deficits in processing and refining, nor value-added production.
While China’s rare earth ban would be a strategic leverage point, its ripple effects on global markets, political alliances, and technological progress would be far-reaching and potentially destabilizing for both nations, propelling them both into heretofore not experienced crises in the modern era.
A Strategic Rare Earth Accord?
To address possible escalating trade tensions and secure critical resources for U.S. industries, Donald Trump could propose an unorthodox yet pragmatic deal with China: a long-term rare earth supply agreement in exchange for expanded Chinese access to certain U.S. markets. This deal, forged through a high-profile visit to Beijing, could offer mutual benefits while addressing key geopolitical and economic concerns for both nations.
In this scenario, Trump would position the U.S. as a willing negotiator, recognizing China’s dominance in rare earth processing (90% of global capacity) and its critical role in the supply chains for defense, technology, and renewable energy.
The U.S. would seek guaranteed, uninterrupted access to processed rare earth elements for 20 years at stable prices. This would provide the U.S. with the resources needed to sustain domestic manufacturing of electric vehicles, military equipment, and other high-tech products, mitigatingrisks of future supply chain shocks while working on its own resiliencetrajectory.
In return, Trump could offer selective concessions that align with U.S. strategic goals. For example, the U.S. could ease restrictions for Chinese companies in non-sensitive sectors, such as agriculture or consumer goods, granting China greater access to its lucrative domestic markets. This could include increasing quotas for Chinese-made electronics or clothing in exchange for a tangible reduction in tariffs on U.S. agricultural exports like soybeans and corn. Additionally, Trump could propose joint investments in infrastructure projects—such as green energy collaboration or, for that matter, joint AI initiatives—that would allow both nations to demonstrate goodwill.
To enhance the deal’s viability, Trump could emphasize shared interests, framing it as a win-win for global stability. For China, securing U.S. markets would strengthen its economic diversification and alleviate domestic pressure caused by slowing growth. For the U.S., stabilizing access to rare earths would protect national security and advance its climate goals.
This approach would require Trump to balance tough rhetoric with diplomatic pragmatism. A personal visit to Beijing, symbolizing a willingness to engage directly, could yield significant political and economic dividends. While the deal would face domestic criticism and scrutiny over concessions, its potential to de-escalate tensions and reinforce U.S. supply chain resilience would offer a compelling counterargument.
A Hardline, ‘Greater’ U.S. Strategy
The U.S. could, on the other hand, adopt an aggressive strategy to counter China’s economic dominance and geopolitical ambitions by combining sanctions, supply chain decoupling, and military assertiveness.
Expanding export controls on critical technologies like semiconductors and AI chips could significantly hinder China’s high-tech industries. Secondary sanctions would pressure allies to align with U.S. trade policies. A bold effort to decouple from Chinese supply chains would include subsidies to boost domestic production in critical sectors and shift sourcing to alternative partners in Southeast Asia, India, and Latin America.
To address China’s rare earth monopoly, the U.S. could invoke the Defense Production Act to accelerate domestic mining and processing, partner with allies like Australia and Japan to create a strategic rare earth alliance, and even disrupt China’s rare earth sector through covert means. While this is not ideal, it’s a possibility, but a full ramp-up of a rare earth complex in America or among its allies would likely take a decade.
Militarily, the U.S. could increase its presence in the Indo-Pacific, conduct joint exercises near Taiwan, and counter China’s Belt and Road Initiative with alternative infrastructure investments in developing nations. Tariffs on Chinese goods and restrictions on Chinese investments in U.S. strategic sectors could further isolate Beijing economically. The U.S. could act aggressively and secure the Panama Canal, Greenland, and other moves to disrupt current geopolitical norms. The backlash to such efforts could be significant with unforeseen costly geopolitical externalities.
This approach carries serious risks, including retaliation such as a rare earth embargo or military escalation in the Taiwan Strait. Decoupling would increase short-term costs for U.S. consumers and businesses, and global economic disruptions could follow of possibly profound proportions, subjecting populations in both nations to unprecedented economic crises.
Such a hardline strategy aims to weaken China’s leverage and force it to compromise. However, it would require strong U.S. alliances and resilience to withstand the likely major fallout of a full-scale confrontation.
A Third-Way?
A third approach, blending some elements of the above, may be possible, but Trump’s executive orders so far have largely overlooked the critical vulnerabilities in the rare earth supply chain. Does he know something the experts in the field do not? According to popular wisdom, without addressing this dependence, the U.S. remains exposed to significant risks in key industries like defense, technology, and renewable energy.
But perhaps a resurgence of a hydrocarbon order via“drill baby drill” and a ‘greater’ America could render rare earth as well as other critical minerals less central to any conflict.
Daniel
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