Trump’s Trade War: Truce Possible but War Will Continue
Prabir Purkayastha
The Trump-Xi meeting in South Korea today, 30th October, 2025 may have brought about a temporary relief in the US-China Trade war, but unless we see the fine print of the agreement, it is difficult to assess whether it is a temporary truce or the beginning of a rapprochement. The jury is still out on that one and we will wait for a better understanding of what has really been achieved in Busan South Korea.
The hot topic starting with Trump’s second presidential term has been his tariff war, not only with China but with the entire world. Instead of trade policies in which tariffs—import and export duties—play a part, tariffs have become the driver of the US foreign policy, if not its larger political, economic and technology engagement with the world. It is not that its iron fist, the US military, is hidden from view. However, it seems more narrowly focussed on two regions. One is backing Israel in West Asia, and the second, going back to the Monroe doctrine, in which Latin America and the Caribbean is claimed as its “sphere of influence”.
The dreams of a new “rule based” global order, the WTO system launched with fanfare in 1995 seems to have faded under Trump. Trump’s policies has clearly weaponising tariffs, and a throwback to the Cold War export control rules that had been directed primarily against the Soviet Union but also included countries like India. These export control rules were known as the COCOM Rules, and post the fall of the Soviet Union, became the Wassenaar Arrangement. The World Trade Organisation’s export and import regime launched in 1995, supposedly a part of the rule based world order, has had a very short life. Its entire dispute settlement process is now in cold storage, with the US effectively sabotaging its apex body, the WTO Appellate Tribunal. The US refused to accept any nomination of new members to this body, and with retirement of existing members, leaving the body with no quorum for any bench. Without this apex body, all trade disputes in WTO ends up being unresolved, which is where we are right now.
What is different from even the earlier technology control regime—COCOM and Wassenaar Arrangement—is that this one is an entirely made-in-US policy. Even its allies have no say: they have to accept whatever Trump decrees! Not surprisingly, the EU and its would be EU partners in Europe, have shown little spine, bending before Emperor Trump, and accepting whatever policy he decrees. For the world, the trading regime has become a far more dangerous place. In Trump’s world, trade rules are essentially that there are no rules except what the US Trump administration, meaning President Trump says that day.
While the global media has focussed on the sweeping restrictions that China has put on its rare earth exports and the danger to the global supply chain, little has been written about the Export Control Rules that the US Department of Commerce issued on September 29th this year, preceding China’s Rare Earths export restrictions. The September 29th declaration of the US expanded the number of Chinese companies on the US Export Control list from 1,300 to more than 20,000. This was a 15-fold increase to the number of companies for which any US export would have to comply with the new export restrictions.
Even this is a tip of the iceberg. Writing in an article on Peterson Institute for International Economics (PIIE), Martin Chorzempa writes (Oct.27, 2025), “Any US firm exporting even a soybean to China now needs to engage in lengthy corporate sleuthing to follow complex webs of Chinese customers’ entire ownership chain to avoid the risk of being hit with fines or even jail time...The 50 percent rule might seem like a small technical tweak, but the impact, especially on China, will be immense.”
I am not going to discuss here on whether the US export restrictions and the Chinese response were either equivalent or reciprocal. Suffice it to say that both the US 29th September Order and the Chinese Rare Earths restrictions effectively means that the global supply chains are facing in imminent danger of separating and splintering across the world. We are officially seeing the end of a GATT, and then WTO led global trading system based on a common set of rules that was accepted by almost all countries. Even if it did privilege certain countries, particularly the West—Organisation of Economic Cooperation and Development (OECD) countries—there was at least a set of common rules that almost all countries had accepted to follow.
With the US 29th September order, and now China’s Rare Earths export restrictions, the global supply chains will have to be re-engineered by each country so that entities trading with one trading block does not trade with the other. We are back to the days, when the economies of the West and the Socialist countries were virtually separated, with the rest of the world, charting a difficult path in dealing with both.
The difference between the COCOM regime then and now—and this is a huge difference—is that the complexity of each product today has grown significantly. Products today, for example a car today, is much more complex now and has many more discrete components than in the past. This also means that the complexity of their supply chains are a magnitude higher than what existed then.
Let us look at the complexity for example, the Model T Ford, the first mass produced based car. Its internal combustion engine, the heart of the car, had about 100 moving parts. Today, even an equivalent non-electric car, has at least 1,000-2,000 moving parts, a 10 to 20-fold increase. Even in Electric Vehicles (EVs), though the car engine—meaning the electric motor itself—has much less moving parts, the battery and its supply chain, is far more complex than the fuel supply chain of diesel or a petrol car. Even in a petrol or a diesel car today, the cost of the electronic assemblies based on chips is about 40-50% of the cost of the car (https://www.statista.com/topics/7983/automotive-electronics-worldwide/#topicOverview).
The separation of this complex supply chains today that enter any major product is a far more difficult task than the US seems to believe. It comes, not from the complexity of the trading system, but fundamentally from the increased complexity of any consumer product, their manufacturing complexity, and therefore the complexity of their supply chains. It is this complexity of the production and supply chain that makes the separation of the global economy into autarchic blocks, each with their independent and physically separated supply chains, near impossible. Much as the Trump administration might like to believe, there is no “Back to the Future” road for the world today.
To illustrate, let us take a quick look at two critical industries and their respective supply chains. The country that controls the bottlenecks or the critical choke points in these supply chains, can assert effective control over the supply chains of these critical industries. For the current phase of the technology-cum-supply chain war between the US and China, let us look at the rare earth production system here, as we have already covered the chip wars quite often in these columns.
A significant part of the media naively believes that rare earth monopoly merely means mining rare earths, i.e., simply digging it out of the ground. What they do not seem to know or refuse to understand, that the technology control that China has built is in concentrating the ore, separating the actual rare earth minerals as they are present in the ore in low concentration often mixed with even radioactive substances, e.g., like thorium in monazite sands in Kerala. Lastly, some of these rare earths enter permanent magnets, present in almost all high-efficiency motors, and generators.
Even when the rare earth bearing ores have been separated from others, purification from ore form to the final product is again a complex process. For example, even though Australia does mine rare earths—it is the 4th largest supplier of rare earths—the final step of the separation, particularly for the heavy rare earths, is done in China. According to Benchmark Mineral Intelligence, a UK-based research firm, China accounts for as much as 99% of global heavy rare earth processing. According to Goldman Sachs, the West may need at least a decade to loosen China's control over the rare earths supply chain.
Rare earths, particularly the heavy rare earths, are required for permanent magnets. It enters not only the supply chain of renewable energy, but as we have covered earlier in these columns also a whole range of military arms and equipment: from missiles, drones to aircraft, ships and submarines. In other words, if the chipmaking eco-system, specifically lithography, is controlled by the US and its allies, China controls the rare earth eco-system. Not simply mining the rare earths, but not only refining it, but also to produce permanent magnets, used in almost all major industrial and military products. Interestingly, ASML’s lithographic machine, the lynch pin of the US control over the chip manufacturing supply chain, also needs large amount of rare earths for its lasers and permanent magnets in the focussing system!
The only edge the US holds today is in defence, appropriately renamed by Trump in the US as the Department of War. The US military spending is equal to that of next 9 countries. His hope is therefore to leverage the US military power and convert it to trade and financial power. In his books, extortion is the only game left for the US, and that is what is in play in global trade relations. Can the US convert its military power, and the dollar as the global currency, into global economic dominance? This is at the core of the Trade War that Trump has launched on the whole world including his allies.
Yes, we may see a temporary truce between the US and China in the current tariff battle, as the immediate crisis may have blow over with Trump-Xi meeting in South Korea. But the larger trade war between the two economies will only continue unless the US willing to come back to a global trading regime. That at the moment seems unlikely, as gutting the world trading system—the WTO—was a bipartisan policy under Trump and Biden.
