Bessent, Greer: Retaliation on China Being Readied, but Escalation Avoidable

The two men were speaking a few days after President Donald Trump threatened to hike tariffs on Chinese goods by 100 percentage points, and to impose export controls on software sold to China. They are the co-leaders of trade negotiations with China.

Given the fact that some documents are written and others are in progress, the threat Trump posted "is quite real, but our expectation is that they won't implement this, and that we'll be able to be back to where we were a week ago, where we had the tariff levels we've agreed to, and we have the flow of rare earths," Greer said.

Greer and Bessent both used strong language to describe the Chinese proposal to require licensing for all sales of goods that contain even a minuscule amount of Chinese rare earths.

"It's a clear repudiation of everything we've been working toward for the last six months, which was a stable tariff situation and a continued flow," Greer said. He noted that last week, "China announced a sweeping expansion of its export controls on rare earth elements and rare earth processing equipment, as well as technologies related to batteries, vehicles, industrial diamonds and super hard materials."

Bessent said that auto companies called his office and said the rare earth magnet exports have slowed. He scoffed at China's explanation, which is that a national holiday was to blame. He said they can't be trusted not to weaponize chokepoints in the global supply chain.

"China's actions have once again demonstrated the risk of being dependent on them for rare earths, and for that matter, anything," he said. "If China wants to be an unreliable partner to the world, then the world will have to decouple. The world does not want to decouple. We want to derisk."

Greer said that China's proposal is not a proportional reaction to American export control expansions.

"These actions, if implemented, would apply to the entire world. China's announcement is nothing more than a global supply chain power grab," he said. "At its core, China's new measures include a rule saying that any product of which more than 0.1% of minerals consist of minerals lined or processed in China, one must seek approval from the Chinese government before trading it. Since many important semiconductors, for example, have these critical minerals, and semiconductors are nearly everything, this rule gives China control over basically the entire global economy and the technology supply chain. This will impact artificial intelligence systems and high-tech products, but even regular consumer items like cars, smartphones and potentially even household appliances can be affected."

He said if a smartphone is made in Korea and exported to Australia, "then the company would first need to get China's approval, since the phone contains semiconductors which may contain rare earths, or if a car is built in America and sold in Mexico, you would need to seek approval from China before making the sale because of the chips in the car."

It also applies to defense matériel, he noted. China said it wanted to prevent the sale of these goods to weapons manufacturers, for the cause of peace.

Bessent said it's President Trump who pushes for peace. "It is the purchase of Russian oil by China that fuels the Russian war machine. China buys 60% of Russian energy," he said, and said that Chinese parts are a substantial proportion of the drones launched by Russia.

Not only did Greer say this wasn't a proportionate response to the Bureau of Industry and Security's recent 50% rule (see 2510030041), he and Bessent also said they don't think it was a reaction to that at all. Rather, they argued, China is pointing to U.S. trade actions as a pretext. Bessent said Chinese official Li Chenggang, who came to Washington in August, threatened: "China will cause global chaos if the port shipping fees go through." Bessent said that the Commerce Ministry official was not invited to come to Washington, and contrasted his aggressive tone with talks in Geneva, Madrid, London and Stockholm.

Greer said the U.S. never promised to stop trade remedy cases on Chinese goods, pause expansions of the BIS Entity List or other export controls, or delay the Section 301 action on Chinese ships and logistics equipment while talks are ongoing.

He said the terms of the Geneva truce are public. "It's published. We keep our tariffs low. They keep the rare earths moving. We have not imposed our reciprocal tariffs on the Chinese since that time, but now the Chinese have expanded their rare earth controls. We have complied. They have not."

Bessent said the U.S. "would rather not" take "substantial action" to respond to China's proposal, and that staff will continue talking this week.

"I believe China is open to discussion, and I am optimistic that this can be de-escalated," Bessent said, adding that he expects Trump and China's president will still meet in South Korea in a few weeks.

Bessent also said he would be speaking to European, Indian, Australian and Canadian officials in Washington for IMF meetings, as well as officials from Asian democracies. He said during a CNBC interview before the press conference that they would work up a group response.

"Bureaucrats in China cannot manage the supply chain or the manufacturing process for the rest of the world," he said. He said that the U.S. and allies "have lots of levers that we can pull for products that they need that could be equally [as] damaging" as the Chinese proposal. He hastened to add, "We don't want to damage their economy," and he said he believes the Chinese don't wish to damage the U.S. economy.

A reporter at the press conference asked them if the Chinese offered to delay implementation of the export controls for six months or a year, would that be enough for the U.S. to keep tariffs where they are?

Bessent said perhaps the 90-day pause on higher tariffs could be a longer extension if the Chinese agreed to delay.

Greer said the minimum would be a delay. However, he said, "Our expectation is that this never goes into effect," because they don't have the capacity to monitor the global supply chain in this way and license all these sales.

He said when they tried to license the sale of rare earth magnets, "they actually couldn't implement it, and it took months and months to get the flow of magnets to something that was barely tolerable. Now, take that program, which was trying to deal with thousands of license applications, and multiply it by 1,000 -- that's what we're talking about. Because we're not just talking about the rare earths themselves. We're talking about many downstream products that contain those rare earths. The scope and the scale is just unimaginable, and it cannot be implemented."

Another reporter asked if the Chinese are unfazed by Trump's 100% tariff threat.

Bessent replied, "I can guarantee you when we were in Geneva, and the tariffs were 145%, they were fazed."