Aurelia Butler

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.This article is an on-site version of Free Lunch newsletter. Premium subscribers can sign up here to get the newsletter delivered every Thursday and Sunday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersWe are coming up to a series of high-powered summits in quick succession: G7 leaders meet in Canada this weekend, Nato leaders gather in The Hague next week and the European Council of all EU leaders takes place later in the month. The general challenge at all such meetings these days is to avoid a bust-up with US President Donald Trump. But the most important specific issue that the “rest of the west” is struggling to manage as the US goes rogue is how to deal with Russia. At Nato, the hope is that members will commit to spending much more on defence. At the other summits, what I will be watching most closely is whether sanctions on Russia will be tightened — and whether this will happen with or without US co-operation. The EU has set things in motion with the punchy new sanctions package proposed by Brussels this week.The impact of further sanctions — and therefore the debate around imposing them — hinges on how badly they will hit Moscow’s resources. So today I take stock of the latest signs coming out of the Russian economy, which is developing not necessarily to the Kremlin’s advantage (to paraphrase Japan’s second world war Emperor Hirohito). Russia may not be quite the riddle wrapped in a mystery inside an enigma that Winston Churchill described in late 1939. But the current strength of the Russian economy remains difficult to assess. Partly that is because President Vladimir Putin’s regime has every interest in misrepresenting it (to his own people and to the outside world) as more robust than it is. Partly because something can be both strong and brittle: the most obvious ways in which the Russian economy could break — a credit crisis or a popular revolt — are virtually impossible to predict the timing of.A few months ago, I described Russia as a financial house of cards (though note that a house of cards can remain standing for a long time, even if it collapses quickly once it does). In an opposite take for the FT, Alexandra Prokopenko warns against the “dangerously misguided assumption that Russia’s economy will crack under the staggering cost of militarisation, anaemic growth and decreasing oil prices”.I don’t agree with Prokopenko’s suggestion that western policy is “anchored” in this assumption — my impression is that most western policy is resigned to the flawed premise that Putin can at best be contained, not defeated. But it is clearly unwise to base plan A on an expectation of economic collapse. That is compatible, however, with putting maximum pressure on Russia’s economy to erode as much as possible the material and political resources enabling Putin’s criminal war. And this is a time when such pressure should be particularly effective. A new report from the Center for Strategic and International Studies (CSIS), with a detailed up-to-date overview of the state of the Russian economy, shows that Putin has maxed out the benefits of “war Keynesianism” of fully mobilising domestic and available foreign resources. There is no slack left to exploit, and the damage to non-war-related sectors and activities is beginning to show — to the point where policy is increasingly shaped by the need to protect them and not just boost the war industries.Here are some of the signs that the economy is increasingly straining under the pressure of war management. My colleagues recently updated their investigation of the Russian labour market through salary offers in job ads, finding that the heady wage growth driven by recruitment to war and defence industries has begun to taper off. The CSIS reports several other signs that the war boom is waning. The economy has run out of workers to boost the labour force, because of the number of men killed or injured in attacking Ukraine or who emigrated to avoid having to do so. The CSIS authors assess that “somewhere between one to two million labourers are estimated to have functionally left Russia’s productive economy since February 2022”. They also assess that “non-military industrial production has stagnated since mid-2023”, and overall manufacturing, including defence, is slowing down, with some indicators pointing to outright contraction in the past few months.Then there are financial markets. Economists Thore Johnsen and Ole Gjølberg have drawn my attention to the Russian yield curve — the difference between long- and short-term government borrowing costs — which has been negative for more than a year. This unusual situation (the norm is that long-term borrowing costs more than short-term) is a common financial signal that an economy is entering recession.Some content could not load. Check your internet connection or browser settings.When I hosted the exiled Russian economist Sergei Guriev (now dean of the London Business School) for a podcast in February, he was then a little less sceptical than I was about Russia’s economic resilience. So I returned to him now for his updated view, which is that the seeming slowdown in the past few months is real. “Overall, the economy is now in significantly worse shape,” he told me, but “it is still not collapsing”. Lower oil revenues are a big part of the economic strain. Since the start of the year, a last-minute tightening of sanctions by the outgoing administration of Joe Biden and the fall in oil prices due to the economic uncertainty caused by Trump have combined to take a big bite out of Russia’s oil revenues. The public finances will rely on higher taxes and deficits than was foreseen a year or two ago.The CSIS report highlights how oil prices have always been a big political vulnerability for the Kremlin:For example, various western constraints and sanctions against the Soviet Union only truly delivered when combined with the collapse of energy prices in the mid-1980s . . . Low oil prices were also a significant factor in instigating the 1998 economic crisis . . . By some estimates, an oil price decline to $30 per barrel would deprive the Russian budget of an amount comparable to all current military expenditures, making the foreign trade balance negative in the context of continuing war and sanctions.It’s clear that the Russian leadership has realised it couldn’t go on as before. In January, I reported on Craig Kennedy’s study of the off-balance sheet financing of the war industry through state-directed subsidised bank loans. Kennedy tells me such lending stopped abruptly around the end of last year, presumably because it was recognised as unsustainable and harmful to the non-war-related sectors and broader macroeconomic management. But the result has been to make visible what was hidden, with the public budget now showing greater spending, deficits, and pressure to raise taxes. “So, if you’re not making major breakthroughs on the battlefield, and if the west manages to persuade Moscow that it will continue to provide adequate resources to Ukraine (Moscow doesn’t yet appear convinced it will), this rising financing risk could increasingly weigh on Russia’s war calculus,” Kennedy emailed me. This also means that more sanctions and better enforcement of existing ones would come at exactly the right time: the Russian economy is stumbling and an extra hit would have an outsize impact. What is more, the EU’s 18th package now under consideration aims at precisely the right things: lowering the price cap on oil exports that can be serviced by western shipping and insurance companies, putting the Nord Stream pipelines permanently out of business, imposing sanctions on more of the “shadow fleet” of oil tankers and cracking down further on the remaining financial channels open to Russian trade. There are more things that could be done. In particular, moving forward with segregating Russia’s hundreds of billions of reserves immobilised in the EU (mostly at the Euroclear depository in Belgium) so that they can be transferred to Ukraine as compensation for damage, and stopping other moneymakers for Moscow. The EU still imports Russian-made steel, for instance, which is not only a nice earner for Putin but keeps prices lower than they could be for Europe’s own steelmakers. If the Russian economy has proved resilient, it is because Ukraine’s western friends have refrained from putting it under as much pressure as they are capable of. And the expectation that they won’t do so plays a large part in how Putin chooses to pursue his assault on Ukraine. Change that expectation and you can turn the tide of the war.Other readablesRecommended newsletters for youChris Giles on Central Banks — Your essential guide to money, interest rates, inflation and what central banks are thinking. Sign up hereTrade Secrets — A must-read on the changing face of international trade and globalisation. Sign up here More

Unlock the White House Watch newsletter for freeYour guide to what Trump’s second term means for Washington, business and the worldDonald Trump is poised to sign off crucial parts of the US-UK trade deal that will deliver lower tariffs for British car exports to America in return for improved access to the UK for US beef and ethanol producers.The “cars for agriculture” deal comes more than a month after Trump and Sir Keir Starmer signed off the five-page Economic Prosperity Deal in a televised Oval Office press conference on May 8.UK officials close to the talks said that the two sides were still negotiating over the section of the deal that Starmer said would deliver zero-tariff access to the US for UK steelmakers. The Starmer administration has come under political pressure at home over the speed of implementation of the agreement, as well as facing claims from the UK bioethanol industry that the offer of a large zero-tariff quota to US ethanol producers risks putting them out of business.UK officials are now hopeful that the deal could be signed by the end of the week. “The proclamation is sitting on the president’s desk,” said one, brushing off complaints about the pace of implementation. “Compared to other negotiations and agreements this is being done at lightning speed,” they added.Early on Thursday morning, US commerce secretary Howard Lutnick said the deal would become active “in the coming days”.He wrote on X: “It was a pleasure to meet our great ally, the Prime Minister of the UK, at Downing Street yesterday. “We agreed to implement our historic trade deal as soon as possible, starting with the agreed quotas for UK autos, and US beef and ethanol, becoming simultaneously active in the coming days.”The UK remains the only country to have signed a deal with the US following Trump’s imposition of global “reciprocal tariffs” on April 2.The US administration is currently locked in negotiations with other countries after instituting a 90-day pause that was due to expire on July 9. The tariffs are subject to a legal challenge in the US.Under the terms of the UK-US pact, Trump agreed to cut a 27.5 per cent tariff on cars to 10 per cent for the first 100,000 vehicles shipped from the UK, in a move that was widely welcomed by auto groups such as Jaguar Land Rover and Bentley.In return, the UK offered the US a zero-tariff quota of 13,000 tonnes of beef and 1.4bn litres of ethanol. UK officials confirmed that the legal steps were in place to operate the quotas simultaneously with the cuts to US car tariffs.The bosses of the UK’s only two bioethanol plants warned last month that the 1.4bn litre quota for cheaper US ethanol — equivalent to entire annual demand in the UK — would force them to close their plants.The two plants — Ensus in Wilton on Teesside, and Vivergo in Saltend, near Hull — manufacture bioethanol used in standard E10 petrol in the UK and were already making losses before the deal with the US was struck.The UK’s Department for Business and Trade said three weeks ago that it was “working closely” with the companies to “consider what options may be available” to support them, though so far no solutions had emerged.UK steelmakers are still waiting for the outcome of talks to finalise the size of the quotas as well as the conditions under which UK producers can benefit from a deal. The industry said it was not expecting an agreement until the end of the month at the earliest.Tata Steel, the UK’s largest producer, has warned that it might be excluded from the tariff-free deal with the US because of the origin of some of its products.  After closing its two blast furnaces at Port Talbot last year, Tata has been importing steel from its sister plants in India and the Netherlands for processing in the UK to then ship to customers.However, this could breach US import rules that require all steel to be “melted and poured” in the country from which it is imported. Other UK producers are also expected to be excluded from the deal if the condition is applied.UK Steel, the industry trade body, said it hoped the “US administration will recognise the particular circumstances of our industry, especially as the volumes we send to the US are a tiny proportion of US imports, but highly significant for UK producers”. More

This article is an on-site version of our Unhedged newsletter. Premium subscribers can sign up here to get the newsletter delivered every weekday. Standard subscribers can upgrade to Premium here, or explore all FT newslettersGood morning. Yesterday the US and China announced that they have agreed to a framework to restore a trade-war truce. The details are sparse, but it appears that there will be concessions from China on rare earths and magnets, and the US will soften some technology export controls and visa restrictions. The market did not get excited: the S&P 500 finished the day down 0.3 per cent, and Chinese markets only rose a little. Email us: [email protected]. Inflation It made sense that April’s CPI report didn’t show much impact on prices from tariffs — it was the early days of Donald Trump’s tariff war, and it takes time for producers and retailers to make pricing decisions. May’s cooler-than-expected report takes a bit more explaining.Core inflation, which excludes energy and food, was up 2.8 per cent from the year before, the same as April. But Unhedged’s preferred measure, annualised monthly change in core CPI, came down, after picking up in April: While there were some indications that tariffs were pushing prices up — major appliances jumped more than 4 per cent from April, and toy prices climbed 1.3 per cent — the real surprise is the prices that didn’t rise. Apparel declined 0.4 per cent for the month. New and used-car prices fell, even as carmakers said they would have to increase prices. Smartphone prices fell, too.But it is, alas, too early to say that the good news will last. Given the wild inconsistencies in the administration’s tariffs policies, importers, wholesalers and retailers may still be working through pre-tariff inventories, or sacrificing some margin to hold market share while they wait and see where tariffs actually end up. With tariffs persisting and inventories falling, however, we think there may well be price pressure to come. There are also parts of the report that suggest some of the pre-tariff inflation is still lingering — setting up a sticky situation for the Federal Reserve. Services (excluding energy services) moderated but stayed stubbornly high at 3.6 per cent year-over-year, largely due to rent price increases. It’s possible that the Trump administration’s immigration policies are playing a part. Home and elderly care — an industry particularly reliant on immigrant labour, according to the Bureau of Labor Statistics — saw a 7.1 per cent annual increase.Every month where the prices of imported goods do not rise quickly is a good month. It is possible that the economy is flexible enough, companies’ margins thick enough, and Trump and his team timid enough, that tariffs will ultimately have a mild impact on prices. But we’ll need a few more months to be sure, and the market seems to agree. While the Fed-policy-sensitive two-year Treasury yield fell seven basis points after the CPI report, stocks were muted. The case for a rate cut is taking shape, but we’ll all have to hold our breath a little bit longer. (Kim)The distorted copper marketWhile the Trump administration has yet to announce a copper tariff, there is wide speculation that it is planning to. The reasons are straightforward. China has dominated copper smelting, or extracting copper from copper concentrate. And the administration appears to want copper to be mined and smelted in the US, and considers this a national security issue. China’s overcapacity does indeed introduce market distortions, but the threat of tariffs has only made the problems worse. The prospect of copper and other tariffs have pushed US copper prices up, well above prices in London:The divergence has resulted in massive flows of copper to the US. US manufacturers are buying to stay ahead of any possible tariff, and traders are taking advantage of the price arbitrage, then scrambling to cover their positions with physical settlements of the metal. Copper inventories in the US have hit a 5-year high:The arbitrage is affecting prices around the world. The London price has been rising to catch up. And copper buyers in Europe, Africa and Asia are facing shortages and paying a premium on top of the London rate.This comes on top of issues in China. The Chinese government has made a push to support its metal industry in recent years, resulting in a big surge in smelting capacity. This had led to a supply-demand imbalance, particularly in the market for unsmelted copper concentrate, said Andrew Cole, principal analyst for base metals at Fastmarkets. The combination of that pre-existing supply imbalance and the extra demand from the US is turning the economics of the smelting industry, at least in China, on its head. Typically, smelters charge a fee to turn the copper concentrate into refinable copper. That fee has now gone negative, meaning the smelters are paying miners and metals companies to get the concentrate in order to keep their operations running. So far, Chinese smelter output has not fallen in response. As Cole at Fastmarkets pointed out to Unhedged, “smelters have been very resilient . . . and we’ve had very few cutbacks”. Indeed, Chinese exports of finished copper have generally increased. And Chinese imports of copper concentrate have, too:According to Alice Fox, associate director for commodities strategy at Macquarie Group, the recent inversion in spot prices mostly reflects the Chinese market, but smelters elsewhere are also feeling the pinch:The negative price is the spot price; a lot of concentrates are sold under annual terms instead, which currently has a positive [smelting fee] of $21.50 per tonne. That is still very low; at that level smelters should be just about break-even . . . There is a concern over how long smelters can continue at low or negative margins. For vertically integrated smelters — most [of the smelting] outside of China — 90 per cent of their concentrate would be under the annual contract, at a positive [fee].Smelters also generate revenue from other metals, such as gold, which are byproducts of copper smelting. That should help them stay solvent. If Trump’s tariffs do take effect and more US smelting capacity is brought online — without a reduction in smelting capacity or a pick-up in copper mining elsewhere — competition between countries and smelters could become more fierce, which could flow through to copper prices. But there are rumblings that Chinese smelters may cut output. In the short term, however, many analysts are bullish on the copper price. From Fastmarkets’ Cole:There are bullish fundamental undercurrents in copper due to tariff-related supply distortions, compounded by the threat of supply disruptions created by extreme imbalances in copper’s raw material [concentrate] markets.The strange happenings in the copper market are just one instance of a problem visible elsewhere. State-supported Chinese overcapacity does create distortions; US tariff policy — actual or anticipated — introduces new imbalances.(Reiter)One good readNuclear economics.FT Unhedged podcastCan’t get enough of Unhedged? Listen to our new podcast, for a 15-minute dive into the latest markets news and financial headlines, twice a week. Catch up on past editions of the newsletter here.Recommended newsletters for youDue Diligence — Top stories from the world of corporate finance. Sign up hereThe Lex Newsletter — Lex, our investment column, breaks down the week’s key themes, with analysis by award-winning writers. Sign up here More

Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.Western companies say China is demanding sensitive business information to secure rare earths and magnets, raising concerns about potential misuse of data and exposure of trade secrets.Beijing’s commerce ministry is asking for production details and confidential lists of customers as part of its export approval process for critical minerals and magnets, according to multiple companies and official guidelines.China dominates the processing of rare earths and manufacturing of the magnets in which they are used.These magnets are widely used in electronics, electric vehicle motors, wind turbines and defence applications such as fighter jets, giving Beijing a significant point of leverage with its trading partners.Frank Eckard, chief executive of German magnet maker Magnosphere, said Chinese authorities were asking companies to reveal “confidential information” about their products and businesses to obtain export approvals.“It’s a matter of [China] getting information . . . officially” rather than “trying to steal it”, he said.In early April, Chinese authorities introduced stricter export controls on seven rare earth metals and related magnet materials as part of its tit-for-tat trade war with the US. The move sent companies around the world rushing to secure supplies to maintain production.The US and China this week struck a framework deal under which President Donald Trump said Beijing would ease constraints on the flow of rare earths, a priority for the White House. China has not said it would abandon its export controls and it was unclear if the latest deal would affect the approval process for shipments of the critical materials.Under the current rare earths licensing regime, China requires foreign companies to submit comprehensive data about their operations, workforce, end-use applications and production information.Companies can be also asked to provide images of products, facilities and details of past business relationships, according to the commerce ministry guidelines for dual-use exports.“They ask for a lot of things, really a lot of things,” said Andrea Pratesi, supply chain director at Italy’s B&C Speakers, which makes speakers for concerts at a plant near Florence. He said the company had submitted pictures and a video of its production line as well as information about its market, the names of its customers and some customer orders with names blurred out.“We had to, otherwise they put aside all your papers and wait for what they requested,” he said, adding that B&C had received approval for two orders and were waiting on a third. “We have nothing to hide — we produce loudspeakers.”Some content could not load. Check your internet connection or browser settings.Experts agreed that the commerce ministry’s demands sometimes went further than its published guidelines. A Chinese export control lawyer, who asked not to be named, said the ministry had frequently requested information covering end users’ “production and operations, process flow”.Matthew Swallow, a product manager at UK-based Magnet Applications, said his company had received several rejections in April “for lack of end-user evidence”.“We now provide photographs of the magnets in production, details of the ultimate application [and] the customers of the end users,” among other details, he said, which has helped them obtain several export approvals.Swallow said there was “certainly concern” about unmasking their customers. He said he was advising clients to not include trade or IP secrets in their applications.The applications are typically submitted to local commerce bureaus by Chinese suppliers on behalf of their clients, underscoring concerns about possible theft of trade secrets and business partners.China’s commerce ministry did not immediately respond to a request for comment.Jens Eskelund, chair of the EU Chamber of Commerce in China, said the level of detail made it difficult for companies in sensitive industries to comply with or even apply for the export licences.“For some of the applications, you need to stipulate the uses to such detail that it creates an IP concern,” he said.But another European executive, who asked not to be named, said that, for now, most companies were prioritising their need for rare earth magnets over longer-term security concerns.“Companies are willing to do whatever China wants to get the supplies,” they said.Data visualisation by Haohsiang Ko in Hong Kong More

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This article is an on-site version of our FirstFT newsletter. Subscribers can sign up to our Asia, Europe/Africa or Americas edition to get the newsletter delivered every weekday morning. Explore all of our newsletters hereGood morning and welcome to FirstFT Asia. In today’s newsletter:We start in the US, where the Pentagon has launched a review of the 2021 Aukus nuclear submarine deal with the UK and Australia. The US will determine whether it should scrap the project, throwing the security pact into doubt at a time of heightened tension with China.What to know about Aukus: Australia and Britain are due to co-produce an attack submarine class known as the SSN-Aukus that will come into service in the early 2040s. While Aukus has received strong support from US lawmakers and experts, some critics say it could undermine the country’s security because the navy is struggling to produce more American submarines.What happens now? The reassessment will be led by Elbridge Colby, a top US defence department official who previously expressed scepticism about Aukus. Last year, Colby wrote on X that it “would be crazy” for the US to have fewer nuclear-powered attack submarines in the case of a conflict over Taiwan. Ending the pact would be a blow to a security alliance the US has with UK and Australia. Here’s what else we’re keeping tabs on today:Israel: The UN General Assembly will hold an emergency special session on Israel.Economic data: India reports its May inflation figures. The UK publishes GDP figures for April.China-Africa relations: The fourth annual China-Africa Economic and Trade Expo begins. Chinese FM Wang Yi is expected to attend.Five more top stories1. Donald Trump said the US and China’s deal to restore their trade war truce is “done” after two days of negotiations in London. The deal revived a truce agreed in Geneva last month that faltered because of differences over Chinese rare earth exports and US export controls. Here’s the full readout from the talks.2. The EU is preparing sanctions against two Chinese banks that allegedly enabled banned trade with Russia as part of the European Commission’s latest package of measures, people with knowledge of the plans told the Financial Times. The move would be the first time Brussels has targeted a third-country lender for supporting Moscow.3. Elon Musk posted on X that he “regrets some” of his recent comments about Donald Trump after the two traded insults last week. White House press secretary Karoline Leavitt told reporters on Wednesday that the US president “acknowledged” and is “appreciative” of the billionaire’s remorse. Since last week, allies have continued to urge Musk and Trump to repair their relationship.4. One of the world’s largest auto parts suppliers has filed for bankruptcy as it seeks breathing space from its debts. KKR-owned Marelli’s decision to seek court protection brings to a close the latest chapter in one of the most contentious, costly and publicly sensitive private equity deals in Japanese corporate history. 5. The World Bank will lift a decades-long ban and “re-enter” the nuclear space, the lender’s president said in an email to staff on Wednesday. The shift follows advocacy from the pro-nuclear Trump administration and a change of government in Germany that previously opposed financing atomic energy. Visual investigationIn March, Mexican authorities seized a 46,000-tonne vessel suspected of illegally importing fuel from the US. A subsequent raid on nearby storage facilities uncovered weapons, tanker trucks and 10mn litres of diesel. But this was no isolated case. The FT has uncovered dozens of suspicious shipments, with millions of barrels of fuel falsely declared as industrial lubricant. Our latest visual investigation explores how the sophisticated smuggling operations fund Mexico’s cartels.We’re also reading . . . Declining population: As birth rates continue to plunge, Japan must stop being overly optimistic about how quickly its population is going to shrink, economists have warned.Junior banker stand-off: Apollo Global Management is the latest group to delay hiring junior bankers after recent pressure from Jamie Dimon.CEO pay and perks: Executives may find the idea of disclosing less about their packages attractive, but this carries its own risks, writes Brooke Masters.Chart of the day Central banks are accumulating gold at a “record pace” and have now overtaken the euro as the world’s second most important reserve asset, according to the European Central Bank. Bullion accounted for 20 per cent of global official reserves last year, with its largest buyers being India, China, Turkey and Poland, per the World Gold Council. Take a break from the newsThe Tour de France in Scotland, rugby in Las Vegas and the Saudi Arabian Grand Prix? Tourist boards are discovering the benefits of luring big-name sporting events from their traditional homes. Sports tourism is now one of the fastest-growing segments in travel. Will it last?A rugby league supporter in Las Vegas during the warm-up for the matches earlier this year More

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Unlock the Editor’s Digest for freeRoula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.In the cult film The Princess Bride, the hero Westley tricks a villain, Vizzini, into killing himself in a battle of wits. Vizzini has to choose between two cups of wine, one of which Westley says is poisoned. In fact, Westley’s cup is also poisoned, but he survives: he had spent years building up immunity to the toxin. Through long and careful preparation, Westley won the battle of wits long before it had begun.Substitute Xi Jinping for Westley and Donald Trump for Vizzini, and this week’s US-China trade talks in London make a lot more sense. They didn’t end in the US lying dead on the ground, but not far off. The sides agreed a comically vague framework of co-operation, with the US asking for a handshake to seal the deal — an activity at which Donald Trump, as it happens, is famously poor.Nor is he much good at negotiating. Beijing is the clear winner in these early skirmishes. Trump has now lifted most of the extraordinarily punitive tariffs he has imposed on China since his inauguration. What he got back this time was China vaguely promising to lift the restrictions on rare earth exports it imposed on April 4, as plaintively requested by his chief economic adviser Kevin Hassett.As I wrote recently, China’s decision in April to cut off exports of certain rare earth minerals is a much more surgical strike than previous ineffectual scattergun restrictions. The restrictions of the early 2010s were undermined by the expansion of mineral production outside China and through smuggling by its notoriously lawless miners and processors.The latest round of restrictions focuses on the less common “heavy” rare earth elements such as dysprosium, which has no large rival producers outside China and whose price shot higher after the controls were announced. Since the 2010s, Beijing has clamped down heavily on wildcat rare earth production and smuggling. Production is dominated by a small number of tightly state-controlled companies, and the latest controls are imposed via “dual-use” export licensing for products used in defence manufacturing. This makes it much easier for the authorities to control the supply chain.The Chinese state certainly has its own issues with judgment and co-ordination. Its rare earth controls are threatening economies Beijing is trying to pull out of the US orbit. European car manufacturers have complained volubly.Alienating all buyers of rare earths is politically risky, but China is at least differentiating somewhat between European companies and American ones. Suppliers to Volkswagen, which has more than 30 plants in China, were among the first to receive a licence to buy rare earths. Beijing is managing to clear the low bar of exceeding the Trump administration’s competence by some distance.US weapons, although formidable, are harder to target precisely. Just as the UK was wrongly convinced that its trade deficit with the EU gave it the superpower Brexit weapon of access to the British consumer, Trump thought prohibitive tariffs on Chinese imports would bring Beijing to heel.There’s no doubt China is vulnerable, having maintained dependence on overseas demand by clinging to its traditional export-oriented growth model. But Trump’s untargeted tariffs meant US companies risked losing key industrial inputs, as well as shelves potentially emptying of consumer goods.As for the US’s own attempts to use export controls to crimp China’s economy, its tools have proved too easily circumvented. Joe Biden’s administration used restrictions on US technology and outward investment to slow China’s technological development in semiconductors and other sectors, and leaned on allies to do the same.It didn’t really work. China rapidly developed its own chip technology. Similarly, it’s unlikely that Trump’s recent restrictions on the export of chip software will allow the US to regain ground lost to China.Trump’s attempt to fight on China’s own ground of controlling critical physical inputs by restricting exports of ethane, a gas used in the chemical industry, is more likely to damage his country’s companies and those of allies. The US still has some extremely powerful weapons, such as restricting access to the global dollar payment system, but their use on a large scale is untested.The triumph of the serenely calculating Westley over the bombastically ignorant Vizzini is a truly great moment in cinema. If Trump wants to win the next round, he is going to have to assess the ordnance at his disposal and deploy it far more accurately. History does not suggest this is a likely [email protected] More