Positive messages were conveyed from the Trump-Xi meeting. Tariff tensions were creating inflationary pressures. While it would be overly optimistic to say the problem has been completely resolved, it would be more accurate to say that there has been a respite in US-China tensions for the next year. Two key points stand out from the meeting minutes. First, China will increase its soybean imports from the US, and second, it will temporarily suspend rare earth element export restrictions to the US. In short, at the heart of this agreement are food supply security and the sustainability of technological production.
The economic interdependence of countries has increased significantly over the past few decades. China, as the world's factory, undoubtedly plays a major role in this. China is not only a production hub but also possesses strategic power with its rare earth element (REE) holdings. Rare earth elements are a key determinant of technological sustainability, as they are a crucial input for production in every field, from electric vehicle batteries and wind turbines to smartphones and artificial intelligence chips. According to Statista's latest data, China accounts for approximately 80 percent of the world's REE production.
The US comes in second with 11 percent. Although China's global share in this sector will decline to around 55 percent, according to projections for 2030 and 2040, it is expected to maintain its top spot in the world rankings. Given these figures, it is inevitable that China's REE export restrictions will have a knock-on effect on global technological developments, hindering the sustainable energy transition and green economy. These conditions strengthen China's position against the US. Trump wants to create more technology giants from American companies. It currently seems impossible for China to achieve this without its REEs. This agreement not only provides an export market for China, but also represents a compelling need for the US. It's a win-win situation.
Another noteworthy point of the bilateral meeting was China's commitment to increase the amount of soybeans it will purchase from the US. Soybeans are not only a staple in Asian cuisine but also a key input used in the livestock feed industry. China, with a share of approximately 60% of global soybean demand, is a very important buyer. This makes China a significant market for the US, a major soybean exporter. Essentially, this issue is two-sided. For example, China views soybeans as a means of ensuring food supply security and feed industry sustainability. For Trump, it's practically a political credibility indicator. Why? In both his first and second campaigns, Trump emphasized the protection of American farmers' well-being with populist rhetoric. China's commitment to increasing soybean purchases from the US is significant news for American farmers and a tangible political victory for Trump.
The past few days have been characterized by temporary optimism. Trump's fleeting decisions and China's counter-strategies have created uncertainties for numerous factors, from supply chains to inflationary expectations and the central bank's interest rate decisions. It seems markets have put this news aside for the next year. However, the context reveals that Trump went to the meeting with China with the intention of reaching an agreement. For example, the fact that a highly sensitive item for Trump regarding China's energy imports from Russia was omitted from the meeting agenda confirms this. The meeting's purpose is apparently limited to a brief respite in agriculture, inflation, and employment policies.
