The Wall Street Journal reports China Cancels Trade Talks With U.S. Amid Escalation in Tariff Threats.

> China scotched trade talks with the U.S. that were planned for the coming days, according to people briefed on the matter, further dimming prospects for resolving a trade battle between the world’s two largest economies.

> On Monday, President Trump announced new tariffs on $200 billion in Chinese imports, prompting Beijing to retaliate with levies on $60 billion in U.S. goods. Mr. Trump then vowed to further ratchet up pressure on China by kicking in tariffs on another $257 billion of Chinese products.

> “Nothing the U.S. has done has given any impression of sincerity and goodwill,” Chinese Foreign Ministry spokesman Geng Shuang said at a news briefing Friday. “We hope that the U.S. side will take measures to correct its mistakes.”

> The latest exchange of tariffs, which take effect this coming Monday, brings China and the U.S. closer to a full-blown trade war.

Full-Blown Trade War

It's pretty clear a major trade war is already underway.

Merriam-Webster defines "full-blown" as "fully mature" or "being at the height of bloom".

It's possible the trade war is already "full-blown", but I doubt it. Trump said he would respond if China responded and China responded.

Thus "full-blown" can only be determined in retrospect.

White House Optimistic

Despite the fact that escalations seem inevitable and no date has been set for talks, White House Optimistic on China Trade.

> The United States is optimistic about finding a way forward in its trade dispute with China, but it does not have a date scheduled for further talks as it assesses Beijing’s response to the latest round of tariffs, a senior White House official said on Friday.

> “We have been very clear in all of these meetings about what is ... required,” the official said. “I am still optimistic that there is a positive way forward, and the president wants us to continue to engage to try to achieve a positive way forward.”

> The official’s comments came ahead of a report by the Wall Street Journal that China had canceled mid-level trade talks with the United States, as well as a proposed visit to Washington by vice premier Liu He originally scheduled for next week.

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Nothing to be Optimistic About

As long as Trump is escalating trade wars against China and the rest of the world too, there is nothing to be optimistic about.

China is not about to back down and lose face.

Trump's moves are pushing China and Russia closer together and that is not such a great thing. China is pretty much the lone global supplier of rare earth elements and Russia a critical supplier of titanium.

Rare earth elements are are crucial in the manufacturing of a vast array of products including smart phones, computers, light bulbs, electric cars, wind turbines, satellites, cruise missiles, and stealth aircraft. Some elements, like neodymium and dysprosium, are highly demanded for the production of permanent magnets, which are used for sensors and motors of those products.

Rare earth elements are not all that rare actually, but a byproduct of rare earth refinement is toxic sludge, which is why countries other than China stopped rare earth refinement. It would take years for the US to develop another source is China cut off supplies.

And there is every reason to believe China would cut supply.

Rare Earth Threat

Lou Jiwei, China’s finance minister until his recent retirement and now a senior Communist Party adviser, delivered an unexpectedly strong threat to the United States in a lunch speech as reported by the the New York Times.

> Mr. Lou said that, if necessary in the trade war, China could halt exports to the United States of components that are crucial to American companies’ supply chains.

> Mr. Lou said that it would take years for American companies to find alternatives to China. “To take a step back, the United States can establish an alternative supply chain in a third country, but it takes time — what about the pain of three to five years? This is enough to cross a political cycle,” he said.

The New York Times did not pick up about the nature of that threat, nor have I seen discussion elsewhere. I immediately understood what Lou meant.

A "full-blown" trade war could easily escalate into a "full-blown" economic war, or even something far worse.

For further discussion of the rare earth and titanium threats, please see Trump Unwisely Escalates Trade War: Expect a "Rare Earth" Response From China.

Mike "Mish" Shedlock

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