Apparently, U.S. President Donald Trump and his chief economic negotiator, Treasury Secretary Scott Bessent, like to play poker.
“You don’t have the cards,” Trump told Ukrainian President Volodymyr Zelensky during their meeting at the White House in February, trying to make him understand that Ukraine could not win in negotiations with Russia what it had lost on the battlefield. “They’re playing with a pair of twos,” Bessent told the press before his first face-to-face negotiations with his Chinese counterpart Vice Premier He Lifeng—attempting to unsettle his opponent.
At the end of October, Trump and Bessent will meet with Chinese President Xi Jinping on the sidelines of the Asia-Pacific Economic Cooperation summit in South Korea. But after having lost five successive hands at the tariff and supply chain table, Trump knows he doesn’t have the cards.
The great awakening came four months ago in May. Despite a reported agreement to resume rare-earth shipments to U.S. customers, China continued choking off exports of rare-earth magnets to the United States, and the latter responded by tightening export controls on semiconductors and aircraft parts. Within a week, U.S. factories producing everything from F-35 stealth fighters and Patriot missiles to Ford’s F-150 and Explorer vehicles were grinding to a halt. As frantic calls poured in from CEOs, the U.S. Defense Department, and others, Trump, Bessent, and Commerce Secretary Howard Lutnick found themselves confounded.
In his global tariff war, Trump has successfully bullied the United States’ European and Asian allies into an acceptance of taxes not seen since the Smoot-Hawley Tariff Act almost a century ago. So, why, when facing off with China, has the Trump team backed down so often that global media describes it with the acronym TACO (Trump Always Chickens Out)? Understandably, no one in the administration has been prepared to say so publicly. But the ugly truth is they have accepted two brute facts: At the tariff table, China’s hand is as strong as the United States’ hand, and in the game of supply chain poker, China holds the high cards. Before going head-to-head with Beijing, Trump failed to ask: Who is the sole supplier of almost all the rare-earth magnets that power almost all the electric motors and literally thousands of other vital items, without which the U.S. economy and military cannot function?
In “The Gambler,” Kenny Rogers counsels poker players: “You’ve got to know when to hold them, know when to fold them, know when to walk away, and know when to run.” So, which should Trump do now?
The U.S. president is currently running toward a meeting with Xi. Trump’s handling of the recent TikTok deal offers a prelude to the way he is likely to proceed, namely, toward interdependence. Fortunately, from semiconductors to the strength of the dollar, Washington still has some high cards of its own and a chance to win.
To understand how we got here, let’s look back at the last five hands in this Sino-American poker match.
The first came on April 2, when Trump announced tariffs on 57 countries. Fifty-six of these countries had leaders who staggered but were ultimately afraid to retaliate—not Xi. He was the only one who not only immediately matched Trump’s 34 percent tariff on China but also revealed one of the aces in his hand by imposing export controls on seven rare earth minerals. When Trump responded by raising U.S. tariffs on China by an additional 50 percent to a total of 104 percent, Xi called him. Trump hiked tariffs again by another 41 percent to a historically unprecedented 145 percent. Xi called his raise again, setting tariffs on U.S. exports at 125 percent without comment. In Bessent’s apt summary, U.S.-Chinese tariffs had produced a virtual “embargo.”
After a month in which American companies struggled to understand the new rules and U.S. markets wobbled, Bessent and He met in Geneva in May for the next hand. Serious negotiations led to an agreement in which tariffs were reduced to 30 percent on China and 10 percent on the United States. While they also discussed export controls, they were unable to agree on clear guidelines apart from a general understanding that U.S. customers would get rare-earth permits more easily. So, when China continued choking rare earths by slow rolling the approval process for export licenses—and frantic CEOs began calling the Oval Office—Trump’s team began to understand the strength of China’s hand. In late May and early June, Trump’s team tried to establish its own counter-leverage. The U.S. Commerce Department added new constraints on the use of Huawei’s Ascend AI chips and on exports to China of semiconductor-design software, airplane and nuclear plant parts, and ethane.
American businesses and arms suppliers responded with alarm. Since China makes more than 90 percent of the global supply of rare-earth magnets, titans of U.S. industry warned Trump that they had no alternatives to Chinese magnets and no meaningful stockpiles to sustain their production lines. Among the most persuasive voices were U.S. automakers. As Ford CEO Jim Farley explained: “We shut down plants for the last three weeks because we cannot get high-powered magnets.” U.S. defense companies sounded the alarm about potentially catastrophic risks to military manufacturing since, as the Wall Street Journal reported, “more than 80,000 parts that are used in Defense Department weapons systems are made with critical minerals now subject to Chinese export controls.”
Recognizing the stakes, Trump called Xi in June. Immediately after the call, Trump posted on social media, saying, “There should no longer be any questions respecting the complexity of Rare Earth products,” and he announced that he would send Bessent to meet with Chinese negotiators for the third hand in the game.
That showdown occurred in London a week later. Bessent and He each had a clearer sense of where their nations stood. They readily agreed to relax the constraints that each found most harmful. While Bessent focused on rare-earth magnets, He’s price was a reversal of the U.S. ban on sales of Nvidia’s H20 AI chips and several related items. When national security hawks, like former Trump national security staffer Matt Pottinger, objected, asserting that “Trump’s team just gave China’s rulers the technology they need to beat us in the artificial intelligence race,” Lutnick explained that it was in the deal “with the magnets.”
The fourth hand, which occurred in Stockholm in July, was a quick one. U.S. and Chinese negotiators agreed to extend the tariff truce until November and began preparing for a face-to-face meeting between Trump and Xi that could establish a framework for a more cooperative economic relationship.
At the fifth hand, which took place in Madrid in July, negotiators settled a TikTok deal that Trump subsequently confirmed on a call with Xi. When examining the deal’s fine print, it is clear that Bessent and He understood that TikTok mattered more to Trump than to Xi. While U.S. shareholders will own 80 percent of the company, ByteDance—TikTok’s parent company—will control and license the algorithm to TikTok. He has suggested that this framework could provide a model for future deals involving Chinese IP and proprietary technology.
In short, Trump demonstrated his readiness to deepen U.S.-China economic and technological interdependence in return for a financial and symbolic win with an app that he views as important to his victory in the 2024 presidential election. Xi demonstrated his willingness to oblige, earning Trump’s goodwill and setting the stage for a more productive economic relationship.
Progress on tariffs and trade have not been announced yet, but staff on both sides are reportedly continuing to hammer out the details of the broader agreement reached in Madrid. Bessent and He are slated to meet for a sixth hand before the tariff truce expires on Nov. 10.
The successive showdowns in which Trump essentially folded inspired Robert Armstrong of the Financial Times to coin the acronym “TACO.” As Armstrong has subsequently explained, the phrase is misleading because it suggests that folding was the wrong choice. In fact, as the journalist has explained in further columns, he believes that Trump made the right choice in each case—because when one does not have the cards and can’t bluff, one should fold.
In fairness to Trump, he wasn’t dealt the strongest hand. A decade ago, Xi declared that he would make other nations dependent on China for the most critical items in their supply chains. In response, the U.S. government and American companies did far too little to protect themselves against this threat.
As long ago as 2010, China demonstrated the ability to use its dominance of rare earths as an instrument of power when it banned exports to Japan to force the release of a Chinese fishing captain. In 2014, Xi publicly outlined China’s strategy for developing asymmetric capabilities, and a year later, he launched his “Made in China 2025” initiative to make China a global leader in manufacturing key frontier technologies.
In 2020, Xi was even more explicit about his strategy. In a meeting with his top economic policymakers, which was extensively covered by the state media, he announced China’s intention to “tighten international production chains’ dependence on China.” In his public comments, he focused on how that would protect China—by creating “a powerful countermeasure and deterrent capability against foreigners who would artificially cut off supply to China.” Left unsaid was the fact that China was forging a double-edged sword. By eliminating its dependence on other nations and deepening their dependence on China, Xi was creating an instrument that China could use to coerce them by choking supply chains of critical items. In Trump’s succinct summary, “China intelligently went and they sort of took a monopoly of the world’s magnets.”
Trump may want to break China’s monopoly, but it appears to be too late. There is no easy way to eliminate vulnerabilities created by U.S. reliance on China for vital items. Indeed, that was reportedly his major takeaway from the shock that the U.S. economy experienced when Xi stopped exporting magnets.
As a result, Trump and his team now recognize who holds the high cards at the supply chain table. Moreover, Trump has concluded that there is no escaping this dependency during his remaining three years and four months in office—or for as far beyond that as anyone can see. Indeed, this view is also shared by many leaders of the U.S. international business community who have thought seriously about this issue, including Apple’s Tim Cook, Nvidia’s Jensen Huang, and J.P. Morgan’s Jamie Dimon.
Thankfully, Washington does have leverage. Fortunately for Trump and his negotiating team, China remains dependent on the United States for several items that it would struggle to function without, including advanced semiconductors and the equipment and software to make them, aircraft, engines, and nuclear plant parts. Xi also knows that China lives in a world where the U.S. dollar is the reserve currency and the United States is the manager of the international financial operating system. Thus, clear-eyed realists in both capitals—of whom Trump and Xi are two—are coming to see that the two countries’ economies are so inextricably entangled that they cannot be unscrambled.
Could this mutual recognition of inescapable interdependence become the foundation for a new chapter in the rivalry between the United States and China? If, in the economic arena, each faces a condition akin to what nuclear strategists call mutual assured destruction, then perhaps both could find their way to a version of mutual deterrence and coexistence like the United States and Soviet Union did.
Trump has signaled his desire for a more ambitious, positive partnership with China. But achieving this will require that the United States remain competitive in what will continue to be an intense, structural rivalry. In the ongoing game of supply chain poker, the United States still holds two unrivaled advantages. The first is an ability to attract the most talented individuals from among the 8 billion inhabitants of Earth and allowing them to realize their dreams in a free society. The second is a network of strong alliances that sustain a balance of power that favors freedom. These are the United States’ pocket aces. Washington should not throw them away.
The post Who Holds the High Cards in Sino-American Supply Chain Poker? appeared first on Foreign Policy.
