Better in their words…

“Eager” is Foo’s choice of words. In fact, the Trump regime is desperate to resolve their screwup with China, as Foo’s use of the word “rescue” suggests. If Bessent can’t induce the Chinese give the US a break, Trump’s threatened tariffs could quickly tank the US economy. Foo presents a succinct summary of what is likely going on in the negotiations, headed by Bessent—including the relative strengths and weaknesses of each side, and where this is likely headed. China, of course, has its own incentives to tone down the conflict, but is in a position to drive a tough deal. It’s a partial view presented in just under 15 minutes, but valuable—one moment in the bigger trade war. I’ve done a transcript of this short video, but Foo did a full length interview with Glenn Diesen today: Sean Foo: U.S. Sacrifices Allies in Economic War Against China. I’ve taken the liberty of cleaning up Foo’s English a bit.

Bessent Eager For China Economic Rescue, Beijing Plays Chess, $1.2T Global Tariff Crash Begins

This is a very important update on the US China trade talks. [Right now the impression is that] Bessent is on a victory lap. And if we look at the headlines, it looks like we have a big framework ready. The entire trade negotiation centers around three things.

The US tariffs on China–that’s a big one. Trump has threatened to raise tariffs by an additional 100%, which is just silly. Rescuing US farmers is another–the US wants Beijing to buy US soybean exports. Finally, [the US wants China to reverse] the rare earth punishmentsto let Chinese supply flow back to the global economy–especially to the United States.

Bessent seems really pumped and he just gave us a robotic [!] summary of the trade talks and here is the US plan.

Bessent: President Trump gave me a great deal of negotiating leverage with the threat of the 100% tariffs on November 1st, and I believe we’ve reached a very substantial framework that will avoid that. We are going to be able to discuss substantial soybean and egg purchases for our American farmers. I think we are going to be able to discuss more balanced trade.

According to him, the Chinese have made incredible concessions to the US and we have to dissect the claim to see who really has the winning hand here. Let’s understand this. Both sides are coming to the table with their own set of cards. They played their hands and the American readout looks optimistic for the US economy. Now, Bessent says that China will delay their rare earth rules by a whole year. In addition, the Chinese will start buying US soybeans again. So, imports will go from zero to something “substantial.” In return, Trump will not impose an additional 100% tariffs on imports from China. Remember, this is just what was revealed to us from the American side. We have no idea what the US had to give up behind the scenes for Chinese favors.

Obviously, the idea that tariff threats—which were totally foreseeable because Trump has played that card and lost with it before—would force one sided concessions is extremely naive, but that’s what the Trump regime desperately wants Americans to believe.

Ramping up the tariffs would hurt Chinese exporters, but it would also hammer down on US consumers as well. US consumer sentiment has collapsed to a 5 month low on the spectre of higher prices. Current conditions have also dropped to a multi-year low. The affordability crisis is back to 2022. Because of the tariff war, consumers expect prices to stay persistently high. Expectations have hit 3.9% for the next 5 to 10 years, an increase from last month’s 3.7%. In other words, the US economy, which is consumption based, is also cracking. China today still sells more than a billion dollars worth of goods a day to the US. So imposing a 100% tariff here is a self-defeating exercise. We’ll be back in a battle of economic attrition. Will the US consumer collapse first or will Chinese exporters crash even harder?

I would argue that removing the tariffs benefits the US more. China will eventually find new markets. The proportion of China’s exports to the US is significant, but it’s not crippling at all. Global demand for Chinese goods is still rising. Despite the tariff war, total exports are nearing $4 trillion over the last 12 months. Even if all Chinese exports to the US gets cut off, it’s only around 2.5% of China’s GDP, maybe even less today. China’s economy will still grow. However, US consumers will feel the pain through higher prices, and there will also trickle down to industrial inputs. Manufacturing costs will also fly to the moon, and that could be even more damaging to the US economy versus China.

But let’s talk about the soybean situation. Now, this is a big area of contention and the crisis is getting even worse. US farmers are anticipating huge losses and Trump was already preparing a $10 billion bailout. Bessent is now extremely confident that China will come back. This is a huge gamble because, if it doesn’t materialize, US farmers will get decimated.

Bessent: Martha, in case you don’t know it, I’m actually a soybean farmer. So, I have I have felt this pain too. And there are a couple of things happening here. One, the Chinese have substantially dropped their purchases to almost zero. So they unfortunately have been using American farmers. I I believe when the announcement of the deal with China is made public that our soybean farmers will feel very good about…

Apparently Scott Bessent is now a farmer. Welcome to the Twilight Zone. Will China really purchase US soybeans? The majority of China’s soybean imports today comes from Brazil and, to a lesser extent, Argentina. Are we headed back to a phase one deal where China commits to buying a certain amount of soybeans a year? That would mean reversing China’s hard stance on US soybeans. Even during the 2018 and 2019 trade war, China still bought 1.5 million tons a year on average. Today, it’s a big fat zero. If China reverses this, it would mean buying less from Latin America, especially Brazil. This move would most definitely save US farmers, but what is Beijing getting in return?

We have to think a little deeper here. Helping the US out is not an easy proposition for Beijing. Both economies are decoupling and the confrontation is not over yet. The chip war and AI race is not going to stop. Any benefit to the US economy would mean empowering them as well. China will need concessions of their own and we just don’t know about those yet. The mechanics of buying more US soybeans is not simple. China will have to drop their own tariffs on the US. And here’s what we mean. US soybeans for October were priced cheaper than Brazilian beans, around $90 per ton cheaper, which is a one or 2% discount. In bulk, and over time, this adds up. But China imposed a 10% tariff on all US imports, remember? And that includes soybeans. In order for Chinese imports to resume, that would mean dropping the tariffs on US soy. That would mean scrapping the levy on $12 billion of Chinese imports. Beijing is not going to do that without concessions as well. Removing the 100% tariff threat is not really enough. It’s not a big enough lure. There’s probably something behind the scenes we aren’t seeing yet.

Finally, we need to talk about the rare earth curbs. Now, Bessent wants China to delay the restrictions by a year. The US is in a very precarious position, especially with the AI bubble growing. They need industries to reshore to the US, especially semiconductors. So, the rare earth flows cannot afford to stop. But one year isn’t enough to do anything when it comes to supply chains. What we will see is the US start to stockpile a ton of rare earths from China. That will most definitely happen. If I were Washington, that’s what I would do. 70% of US rare earths come from Chinese suppliers. Let’s not forget about this. And for some elements, like scandium and gitrium, the dependence is 100%. So we can expect a frenzy of buying from the US and their allies.

So, China will most definitely throttle supplies on their end as well. They might not impose the new restrictions, the 0.1% rare earth ruling, but expecting a buffet of rare earths at rock bottom prices is just insane. Sure, Trump will go around buying up more stakes in the world. We have seen deals struck domestically. We have seen Australia pitching their rare earths to Trump, and the US has now signed new mineral deals in Southeast Asia. Malaysia is one such example. Now that might seem like diversification, but it will still take time. Building new mines and processing plants in Malaysia is possible, but you can’t expect a miracle in 12 months. China still holds the rare earth card for many years to come. China only holds 60% of rare earth mining, so that monopoly can be broken given enough time. The problem is the refining portion of the supply chain. Malaysia is the second biggest refiner in the world, but they only have 4% market share. The Chinese, however, hold 91% of global refining capacity.And let’s not forget the cost efficiency plus the expertise, which affects refining yields as well. If the US or Europe wants to revive their manufacturing industry, especially for high-tech sectors like semiconductors, they still need China.

There’s also another reason why the tariff war is unsustainable.Trump has said it himself. It’s simply not sustainable and the numbers are finally in. Global supply chains are broken and costs are all rising,and this estimate is highly conservative. S&P analyzed 9,000 companies worldwide to find the real costs of the tariffs. We are staring at a $1.2 trillion black hole. Trade barriers are essentially taxes on supply chains. If you’re a US importer, your inputs now cost more. You’ll have to pay tribute to Trump. And if you’re an exporter, your margins will shrink to recapture market share. So this is one big lose-lose proposition. Now the report goes on to say that consumers will feel the brunt of the pain. Only 1/3 will be bought by companies, the rest by consumers, which is absolutely on point. This is doubly so for the US, whose supply chains are still horribly broken. Now what’s funny is how the administration keeps deflecting reality. Once again Scott Bessent doesn’t believe in the idea of high inflation from tariffs. Trump promised cheaper groceries but it’s just not happening today:

Q: Mr. Secretary, coffee prices are up 19% from a year ago. Beef is up almost 15% and bacon up almost 6% just to name a few. So when are all grocery prices going to come down as …

Bessent: Well Christine you know it’s unfortunate as much as I like you you like to cherrypick. So you know when we came in it was eggflation, eggflation, eggflation–you know, egg prices are down, gasoline prices are down, overall the inflation since President Trump has come in the has come down.

Why do you think they want to deescalate with China? The additional 100% tariffs on Chinese goods is just not feasible. It will collapse the entire system, the consumer class will be decimated. By halting the 100% tariff punish punishment on China the US is essentially saving their own economy from further damage. There is a big affordability crisis happening. Americans are falling behind on their car payments. Subprime delinquency rates for auto loans have hit an astounding 6.43%. That is almost a new record high. It’s even worse than the ‘08 financial crisis, 1.4% more. All these big ticket items are getting unaffordable. Imagine if goods in Walmart or Target just double in price. There will be massive cutbacks. People will have to choose. They will get the essentials. They will buy less, and just dump the big payments on their auto loans. There is a cascading effect to the tariff war that is lurking beneath the surface. So if you think the US is doing a favor to China with this trade deal, it’s probably the other way around. Bessent is trying to prevent the entire economy from hitting the iceberg.

It’s important to remember this is just a framework deal. We have no idea of the concessions given by the United States to China. Very likely Bessent considered a lot of things as well. Even if the deal goes through, the long-term trajectory of the decoupling won’t stop. It’s basically a truce for China and the US to take a breather before embarking on the long game. The Chinese themselves are warning that a multipolar world is coming. There’s no stopping the future of the world economy. It’s a jab against the US tariff war and how it is fracturing global markets. China’s plan to rise centers around globalization and reaching out through global trade. The US has no choice but to collapse inwards, and the trade war is splitting the world into blocs. This makes it harder for China to expand their footprint–that’s the big picture, and whatever happens in Korea won’t really change it.