As the latest rounds of trade negotiations between the US and China enter their second day, it is clear who has the greater leverage. And it’s not America.

Unlike last month’s talks in Geneva, where the 90-day trade truce centred on the tit-for-tat exchange of extreme tariffs, the London meetings appear to be focused on export controls. For China, they’re about the US restrictions on exports of advanced semiconductors to China, and for the US, they’re about China’s restrictions on exports of rare earths to the US and its allies.

Chinese President Xi Jinping has a weapon more powerful in the trade war than Donald Trump’s tariffs.

The shift in the nature of the negotiations points to a belated recognition by the US that China’s dominance of rare earths – critical to most advanced manufacturing – could shut down key manufacturing sectors in the US, including the auto and defence industries.

It’s a more potent trade weapon than Donald Trump’s tariffs because those exports can be turned on and off, almost instantly, by Beijing’s decree. With China supplying about 90 per cent of the world’s rare earths and almost all rare earth magnets, there is no significant alternative source of supply.

When the US decided to impose punitive tariffs on China in April as the centrepiece of its “Liberation Day” trade war on the rest of the world, it should have recognised that China had a more powerful weapon up its sleeve than the retaliatory tariffs it imposed on US imports.

Its failure to recognise this shows how poor the Trump administration’s preparation for an escalation of trade hostilities with China has been.

China is showing [rare earths] can be deployed against multiple objectives, and Beijing’s export controls make them more sophisticated, less cumbersome and arguably more effective than the crude weapon of Trump’s tariffs.

China’s stranglehold on rare earths has hardly been a state secret, with the Biden administration going to great lengths to help develop alternate sources of supply, albeit that........

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