Supply chains become new battleground in the global trade war

Today, instead of warheads, the U.S., China are wielding a range of new economic weapons

- Jason Douglas

A key lesson from the latest skirmish in the U.S.-China trade war: The era of weaponized supply chains has arrived.

Earlier this week, Washington and Beijing ended a standoff involving the most potent new tool in superpower statecraft—export controls. As part of a monthslong trade fight, the two sides choked off the supply of such exports as rare earths or semiconductor technology in a bid to gain an edge.

So when Chinese and American negotiators finally met in London to discuss a truce, the talk focused far more on dialing back supply-chain curbs than they did on tariffs, market access and other standard trade-negotiation topics.

That shift highlights how the rivalry between the U.S. and China is increasingly about who controls the levers of global economic power. For businesses and investors, the potential for these tools to be used more broadly in the pursuit of geopolitical goals by Washington and Beijing adds another layer of complexity to an economic backdrop already clouded by tariffs.

"The amount of uncertainty generated by this is significant," said Alfredo Montufar-Helu, senior adviser at the Conference Board in Beijing. "It is something new."

To some analysts, the use of export controls means future trade talks between the U.S. and China will increasingly resemble the arms-control dialogues of the Cold War, when the U.S. and the Soviet Union worked to limit the buildup of nuclear weapons, without giving up the deterrent effect their possession conferred.

Today, instead of warheads, the U.S. and China are wielding a range of new economic weapons that have the potential to cause widespread economic pain. Following the latest skirmish, China agreed to resume exports of rare-earth magnets and critical minerals needed by U.S. companies—but only for six months, The Wall Street Journal reported.