trade war between USA and China
In a press conference this morning, U.S. Treasury Secretary Bessent and the U.S. Trade Representative Jamieson Greer announced that both the US and China will moderate tariffs on one another’s imports for 90 days to allow for further negotiations. The White House also published a joint statement asserting that both sides recognize “the importance of their bilateral economic and trade relationship to both countries and the global economy” and recognize “the importance of a sustainable, long-term, and mutually beneficial economic and trade relationship(s).”
The U.S. has agreed to lower President Trump’s “reciprocal tariffs” on China from 125% to 10%. China has also agreed to abide by the 10% levy. But a separate 20% tariff on Chinese goods that the president imposed over China’s role in fanning the fentanyl crisis in the U.S. will remain in place, which means the total levy on Chinese goods will drop from 145% to 30%.
However, the news for the U.S. automotive industry is not quite as good. Sector tariffs of 25% on steel and aluminum – key raw materials used in the construction of cars and trucks – remain in place. 25% also remain in places on autos and auto parts.
Rare Earths May Be Easier to Acquire
China also agreed to roll back some of the non-tariff measures it implemented in retaliation against U.S. tariffs. The details of this are pending. But this could include a rollback on certain rare earth export restrictions. This would be good for the auto sector, particularly electric vehicles.
After President Donald Trump unveiled his so-called reciprocal tariffs on “Liberation Day,” China retaliated with duties and export controls on rare earth minerals, which are critical to the automotive, as well as aerospace, tech, and defense sectors. So far, those export controls have translated to a halt across the board, cutting off the U.S. and other countries, according to the New York Times.
As early as December 1st, China had announced plans to restrict graphite exports that can be sent to the US. Graphite is a critical input in EV batteries. 80% of the world’s graphite is mined in China. Further, in a move that affected all US auto manufacturers, China had banned the exports of three key rare minerals — gallium, germanium, and antimony – used to make semiconductors. According to Elon Musk, the chief executive officer at Tesla, “a car is essentially a computer on wheels.”
Then, in April, China added seven rare earths and related items to a control list as part of its retaliation against US tariffs. Those rare earths included samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. The decision meant exporters need to apply for licenses before selling outside China. China dominates the rare earth market, controlling 63 per cent of global mining and 90 per cent of processing output.
Exports of these materials to the U.S. were highly unlikely. Rare earth export permits will likely be easier to get for U.S. customers. Reuters reports that the truce announced could see the Ministry of Commerce expedite approvals, “which in theory take 45 days, and even grant licenses for U.S. customers soon, according to two sources in the industry who were granted anonymity given the sensitivity of rare earths in China.” However, a complete removal of the restrictions is unlikely. This remains a key lever for China in the ongoing negotiations.
How Will this Affect Individual Auto Suppliers and OEMs?
UBS, the financial services firm, was guardedly cautious about the developments. In an investment research report released today focused on US Autos, Auto Parts, and Technologies, they state “a thawing of trade could mean less pressure on the consumer and the economy, which is generally positive for autos. We’d expect more relief” for suppliers such as Gentex Corporation (NASDAQ: GNTX), Sensata Technologies (NYSE: ST), BorgWarner (NYSE: BWA), and Adient (NYSE: ADNT). They also expect some relief for OEMs like Tesla (NASDAQ: TSLA), Rivian (NASDAQ: RIVN), and Ford (NYSE: F).
However, while UBS is cautiously optimistic, they are still NEUTRAL on stocks from Adient, BorgWarner, Ford, GM, GenTex, Lear, and Rivian. Tesla, they still rate as SELL. Only Sensata has a BUY rating.
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