The King Kong vs Godzilla battle of world trade: Guess who won?

The trade truce between the US and China demonstrates Beijing’ leverage over key minerals that helped it come up trumps

- SANJOY CHAKRAVORTY

Late last month, in Busan, South Korea, the leaders of the two largest economies in the world met face-to-face and both came away smiling. After months of escalating and tit-for-tat tariffs, the two sides achieved what is being called a détente, a pause in hostilities.

“The deal with China is going to be wonderful,” US President Donald Trump said. “It’s going to be long lasting.” Evoking comparison with along and stable marriage, Chinese President Xi Jinping said, “frictions now and then are normal...China’s development and rejuvenation are not incompatible with President Trump's goal of Making America Great Again.”

All this happy talk is the usual doublespeak and hypocrisy of politics, of course, except in this case the stakes are large. What we have witnessed for the last nine months is a test of wills between two fundamentally different views of market power. One giant, the US, believes—rather optimistically—that it is a monopsony. It (we can think of it as King Kong) initiated a tariff war because it may have convinced itself that as the largest economy and biggest importer with the greatest purchasing power in global trade, it had the ability to demand concessions from countries that were selling to it. King Kong's primary target was the other giant, China, which believes—correctly—that it holds a monopoly over several goods and inputs that are essential for high tech manufacturing. The target (we can call it Godzilla) refused to yield and initiated countermeasures to restrict access to some of these essential inputs.