What will the aggravation of relations between the United States and China lead to? Analysis

The United States has announced new duties for China in the amount of 100% above the already established tariffs and restrictions on software exports — they will take effect on November 1. These measures were a response to China's decision to restrict exports of rare earth metals, which the United States considered "hostile." What the escalation of trade wars between the United States and China will lead to and how this will affect Russia is in the Izvestia article.

Reasons for escalation

• China has ordered foreign companies to obtain a license to export dual-use goods and banned shipments for "foreign military users." An export license will be required even for goods that are manufactured abroad using Chinese technology or contain traces of Chinese-made rare earth metals.

• Chip manufacturers are preparing for supply disruptions due to China's requirement for foreign companies to request export and re-export permits for such products. These are the toughest measures China has taken since the start of the trade wars with the United States, and they will primarily affect semiconductor supply chains. The biggest risk companies are currently facing is rising prices for magnets containing rare earth metals, which are crucial in the manufacture of microchips.

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Consequences of the trade war

• Semiconductor production in the United States depends on Chinese supplies. 70% of the country's rare earth metals are supplied by imports from China, and the main consumer is the American military-industrial complex. China has half of the world's reserves of rare earth metals and occupies a leading position in their extraction, besides, about 90% of the world's refining capacity is concentrated in the country.

• The escalation has already led to instability in global markets: after the US announced new duties against China and canceled the meeting of the leaders of the countries, the currency market of South Korea and Latin America collapsed. At the same time, the shares of Chinese chip manufacturers have shown unprecedented growth. Safe-haven assets such as silver and gold rose in price, while copper prices showed a decline.

• The news about duties for China and the restriction of software supplies led to a collapse in the cryptocurrency market. Bitcoin fell in price by more than 10%, but then partially recovered the fall, and some tokens, including Toncoin, lost up to 80% of their value. During the day, assets worth about $19 billion were liquidated on the crypto market. The panic in the cryptocurrency market is explained by the fact that by the time the United States announced the introduction of new duties, stock markets were already closed and crypto assets bore the brunt.

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• The new round of trade wars demonstrates the attempts of the United States to get rid of its dependence on Chinese supplies. Earlier, export restrictions imposed by China led to the temporary closure of the Ford Motor Co. plant. in Chicago, due to a shortage of rare earth magnets. Restrictions on the supply of Chinese tungsten have affected the cost of drilling rigs for the American oil industry, which has led to lower oil production in the United States. Experts do not rule out that this dependence will force countries to come to a compromise solution on the issue of duties.

What does this mean for Russia?

• Russia is more likely to benefit from China's introduction of export restrictions. First of all, this may affect the course of the Ukrainian conflict. European leaders have already expressed concern about stricter export requirements for rare earths, as Europe's rearmament and Ukraine's military support depend on these supplies. In particular, magnets made of rare earth metals are used in the production of drones.

• Russia has nothing to lose from the confrontation between China and the United States, and the sanctions pressure experienced by the domestic economy exceeds the effect of trade wars. The current situation may be an opportunity to strengthen cooperation with the United States in the field of high technology, as Russia has a raw material base for the extraction of rare earth metals.

During the preparation of the Izvestia material, we talked and took into account the opinions of:

• independent economist, Candidate of Economic Sciences Andrey Barkhota;
• economist Vladimir Demidov;
• American political scientist Malek Dudakov.