China and the United States are making progress in their trade talks. The two sides said last week that they had reached agreement on how to implement the trade framework negotiated in London earlier this month. Under the latest agreement, Beijing will expedite rare earth exports to the U.S., while Washington will lift a series of restrictive measures imposed on China.
In contrast, trade friction between China and the European Union has escalated over the public procurement of medical devices. Beijing has accused the EU of unilaterally erecting new trade barriers and threatened countermeasures after Brussels banned Chinese companies and products from taking part in EU government medical device tenders exceeding 5 million euros ($5.8 million).
Domestically, Chinese industrial companies’ profits fell 9.1% year-on-year in May and were down 1.1% in the first five months. A National Bureau of Statistics representative attributed the decline to weak demand and falling prices.
We will continue to closely monitor this economic warfare, so our readers are better prepared for the impacts to come.
Industrial profits drop
Major Chinese industrial companies’ profits fell 9.1% year-on-year in May, and were down 1.1% in the first five months, official data showed. The decline was mainly due to insufficient demand and falling prices, a statistician from the National Bureau of Statistics said.
Poor performance was recorded by many industrial sectors, with one of the bright spots being the equipment manufacturing sector, which received a boost from government-subsidized equipment upgrade and consumer goods trade-in programs.
PMI’s mixed picture
China’s official manufacturing purchasing managers’ Index (PMI) edged up to 49.7 in June, showing that cooling trade tensions with the U.S. appeared to be having an effect on the sector. The PMI’s 0.2-point increase showed that China’s shrinking factory activity is continuing to recover. The nonmanufacturing PMI ticked up to 50.5, pushing the composite PMI to 50.7.
The recovery remains uneven. Large manufacturers saw activity pick up, while small firms continued to contract. Production and domestic orders increased, but new export orders and employment continued to shrink.
China-U.S. trade deal
China and the U.S. have finalized the details for implementing the trade framework agreed to in London, according to China’s commerce ministry.
The ministry said both teams remained in close contact since the talks and have confirmed the details of this framework, it said.
“The Chinese side will review and approve export applications for eligible controlled items in accordance with the law. The U.S. side will, in turn, lift a series of restrictive measures imposed on China,” the statement said without elaboration.
Read more: China, U.S. Agree on How They Will Implement Trade Framework
Rare earth minerals
To both China and the U.S., rare earths can be either a source of risk or a possible breakthrough. Although a return to full-scale cooperation may be unrealistic, it remains essential to find controllable points of convergence as relations deteriorate.
Rare earths, vital to national security and integral to global supply chains occupy a unique space: highly strategic, but difficult to fully weaponize. How this issue is handled affects not only China-U.S. competition, but the stability of the global supply chain.
Meanwhile, the U.S. Canada and Australia have accelerated efforts to rebuild their rare earth supply chains, aiming to reduce dependence on China.
Read more: Why Rare Earths Could Be a Rare Bridge in U.S.-China Relations
New front of China-EU trade disputes
China has accused the European Union of unilaterally erecting new trade barriers and threatened countermeasures after Brussels last week banned Chinese companies and products from taking part in EU government medical device tenders that exceed 5 million euros ($5.8 million).
In a statement released Tuesday, China’s Ministry of Commerce expressed its “strong dissatisfaction and firm opposition,” saying the move “not only harms the interests of Chinese enterprises but also severely undermines fair competition.”
The ministry called on the EU to “immediately correct its erroneous practices” and vowed to take necessary countermeasures to protect the rights of Chinese businesses.
Despite the strong tone, the statement also emphasized diplomacy. “The Chinese side is prepared to work with the EU through dialogue and consultation to properly handle economic and trade frictions, in order to stabilize the confidence in future cooperation.”
Read more: China, EU Willing to Talk After Brussels Bars Chinese Firms From Medical Device Tenders
Trump talks TikTok
U.S. President Donald Trump has found a buyer for TikTok, but he’s not saying whom, saying only that a “group of very wealthy people” are interested in purchasing the Chinese-owned short video sensation details will be disclosed in “about two weeks.” He acknowledged that Beijing would need to approve the deal.
TikTok has been stuck in limbo since January, when Trump extended a congressional deadline requiring the platform to be sold or banned. The deadline has been extended twice.
Brazil’s soybean exports
Brazil’s soybean exports to China surged to 12.11 million metric tons in May, a 37.5% jump from the same month last year, according to data from China's General Administration of Customs.
The jump signals a strong rebound in demand from the world’s largest soybean importer. Brazil’s National Association of Cereal Exporters attributes the trend to Chinese companies actively procuring the recent South American harvest. Favorable weather conditions in Brazil’s key growing regions also contributed to a robust supply and competitive pricing for its soybeans.
Read more: Brazil’s Soybean Exports to China Jump Over 37% in May
Trade War Monitor is a weekly newsletter compiled and edited by Lu Zhenhua (zhenhualu@caixin.com)
