A Chinese proverb reminds us that when a nest overturns, all its eggs crash (覆巢无完卵, fù chào wù wàn luân). And when the world order is shaken by a fight between the United States and China, all economies end up damaged. Next Thursday, in Gyeongju, the former medieval capital of Korea (now in South Korea), the presidents of the two great global giants, Donald Trump and Xi Jinping, will meet for the first time during the Republican's term in office to try to close a series of trade, investment, and rare earth agreements that will prevent the nest from collapsing at the last minute, as well as the application of tariffs and export controls that could blow up the global economy.

Optimism spread in Washington during a balmy September about the possibility of a face-to-face meeting between the two leaders that would put a trade relationship worth half a trillion euros annually back on track. The two had just had a telephone conversation considered productive. China was considering a massive investment in the US as part of a trade agreement. They had, in theory, reached an agreement to allow the popular video app TikTok, which was subject to a congressional ban, to continue operating in the United States. And Trump flirted with the idea of bringing an agreement from Korea under which Beijing would buy huge quantities of US soybeans, a lifeline for US farmers hurt by Trump's tariffs and the disappearance of markets abroad. But things suddenly changed.

At the end of September, the US significantly expanded the list of entities subject to export controls. The bureaucratic change went somewhat unnoticed. But not by Beijing: it suddenly added potentially thousands of Chinese subsidiaries to the blacklist. The US also began charging new port fees to the rival country's vessels. China responded with similar taxes on US ships. But above all, with new controls on the export of its rare earths, something the Republican administration took as a very low blow.

And it wasn't the first time. After the Trump administration launched its"Liberation Day" in April to impose tariffs of at least 15% on countries around the world, China was the only country to opt for a tit-for-tat approach. Its display of economic muscle sparked a dispute that eventually raised the mutual tariffs to 145% for Chinese products and 125% for US products, a situation that Treasury Secretary Scott Bessent described as a"de facto embargo." But above all, Beijing was wielding one of its greatest aces: export controls on rare-earth magnets, of which it has a quasi-monopoly.

China extracts 70% and chemically processes 90% of the global supply of rare earths needed for everything from cell phone handsets to F-35 fighter jets. And when it cut off the flow of these materials to the US, local factories began to feel the pinch almost immediately: there were no magnets to continue producing electric cars, weapons, or the warships the Pentagon claims it urgently needs precisely to respond to Beijing's naval power.

In a note this week, the investment bank Goldman Sachs makes clear the reason for Trump's obsession with those 17 minerals: a disruption of just 10% in the production of US sectors that require these raw materials could wipe $150 billion off the national economy in one fell swoop.

Restrictions on rare earth exports have put Washington on alert, revealing the extent to which it depends on its rival in the supply chains of components essential to its economic production and its military equipment.

Search for other suppliers

Since then, the Republican administration has stepped up its search for alternative suppliers. It has agreed with Pakistan to develop this sector. This week, Trump and Australian Prime Minister Anthony Albanese signed an $8.5 billion agreement that will help the southern country exploit its rare earths and give the United States access to these raw materials."In a year, we'll have so many critical minerals and rare earths that we won't know what to do with them," Trump declared Monday during the signing of the agreement.

But developing these types of alternatives takes time. Washington and Canberra plan to invest more than $3 billion in projects over the next six months that, according to the White House, will yield $53 billion in production. But it's unclear when these plans will begin to be developed, let alone when they will be completed.

Both Xi and Trump are, essentially, practical leaders. Both administrations are aware of the extent to which their economies are intertwined: while China exports essential products, the US owns the reference currency, the dollar, and controls the international financial system.

“An uncontrolled escalation would not serve the interests of either leader,” writes Ryan Haas of the Brookings Institution think tank. “Rather, at a fundamental level, both leaders are seeking time and space to reduce their dependence on the other for key elements of their own economies. This parallel pursuit of diversification and insulation versus dependence on the other is the megatrend of this relationship.”

Thus, the two leaders will try to resolve the most immediate obstacles in the relationship."I think we're going to get a deal on rare earths," Trump declared this week.

But it's highly unlikely that the two presidents will address the underlying bilateral problems."We're going to see a climate in which we won't see much progress on the structural challenges of the relationship, whether it's the structural imbalances on the macroeconomic side of trade, or the security relationship between trade and our economic security. If there is progress at the meeting, it will be to resolve the minor bilateral irritants," believes Philip Luck of the Center for Strategic and International Studies (CSIS).

In May, in the midst of the dispute, both governments immediately launched negotiations. The result: Beijing opened its hand to rare earths. Since then, the two countries have negotiated in successive rounds—in Geneva, Madrid, and this weekend in Malaysia during the ASEAN summit—90-day deferrals of their respective tariffs, with the idea that the leaders would reach a final agreement at their meeting in Gyeongju.

This meeting will take place just days before the current tariff reprieve expires on November 10. On November 1, US tariffs of 100% on Chinese goods announced by Trump would go into effect if Beijing does not lift its controls on rare earths. The meeting between the leaders has been difficult to schedule and has been in doubt after the back-and-forth between the two countries in September and October suddenly hardened the tone of the negotiations, with Trump even declaring the existence of a trade war.

In their bilateral meeting, scheduled for next week on the sidelines of the Asia-Pacific Economic Cooperation (APEC) summit, the leaders are expected to discuss tariffs and export controls. They will also address China's purchases of agricultural products, fentanyl trafficking, and the situation in Taiwan. And, of course, the war in Ukraine, where Beijing is supporting Russia with the supply of dual-use materials and oil purchases."I'm going to talk to (Xi) about how we end the war, whether it's through oil and energy or some other way. And I think he's going to be very receptive," Trump predicted this week.

Long-term struggle

The disputes are numerous, and the People's Republic has been preparing for a clash with the US for some time. It hasn't approached this trade dispute like the one during the first Trump era. It's aware that the struggle will be long-term; the clash will likely define military and technological leadership in the 21st century. The Asian giant is planning years ahead in the face of what it perceives as increasing US restrictions, especially in the most advanced fields.

The top leaders of the Chinese Communist Party, meeting behind closed doors this week in Beijing to finalize the next five-year plan, have vowed to accelerate"self-reliance" in cutting-edge technologies amid the intense struggle with the US. The conclave's final communiqué calls for preparedness to face"violent storms."

“We need a comprehensive negotiation, not just on the control of rare earths,” says Wang Yiwei, director of the Institute of International Studies at Renmin University in Beijing. “We hope President Trump won’t play the trade card again and again.” Wang believes there is room to steer relations. Regarding the new rare earth control mechanism, he says it is an “anti-corruption campaign” against local governments, such as that of the Chinese province of Inner Mongolia (home to the largest rare earth mining and processing base on the planet).

Under the new scheme, starting December 1, companies will need a license from Beijing to export rare earth magnets and other derived materials containing minimal traces (less than 0.1% of their value) of these elements. The tool has an extraterritorial derivative similar to the one Washington uses to restrict trade with China in chips and advanced equipment containing US technology. The idea is to control trade beyond borders due to its potential dual civilian and military use, including products manufactured abroad but using Chinese technology. Its effects not only reach the United States; they unfold across the globe.

According to Wang, the mechanism aims to curb the clandestine trade of Chinese rare earths that end up in the hands of US military companies sanctioned by Beijing, which in turn supply arms to Taiwan."This is not only a measure to counter the trade war with the United States, but also a domestic concern to establish more coherent control."

China has been designing its critical resource control architecture for some time. Various analysts interpret this as not an improvised tool to gain bargaining power in Korea. Rather, it's a reflection of a geopolitical landscape that Beijing perceives as increasingly hostile. A long-term weapon. So far, it has imposed restrictions on 12 of the 17 rare earth elements. It has also imposed restrictions on other critical resources. And analyst Wang is convinced that the mechanism will remain in place beyond what Xi and Trump agree to next Thursday.