The World Just Turned Against China | Taiwan Tensions | US Trade War | EU-China

Happy Tuesday, everybody. Welcome to another episode of China Update, where we discuss leading political, economic, and geostrategic analysis in the world's number two economy. My name is Tony. Let's jump in. And first up, nearly two weeks after U.S. President Donald Trump declared a done deal with China that would resume the flow of critical rare earth magnets, American companies are still waiting. U.S.-based Bloomberg interviews with industry leaders, trade officials, and company executives reveal in a report published today widespread frustration and confusion. While a handful of export permits have been granted by Beijing, the overall pace of approvals remains sluggish. Quote, it isn't quite day-to-day, but it's week to week, end quote, said a senior executive at a global automaker, underscoring the uncertainty companies face. As regular viewers should know by now, rare earth magnets are indispensable components in electric vehicles, drones, smartphones, medical devices, and perhaps most critically, military hardware. Ford and several other automakers have warned that production disruptions are imminent unless the supply of these magnets resume at scale. In May, China's exports of rare earth magnets plunged 74% year-on-year, the sharpest drop on record according to Chinese customs data analyzed by the Wall Street Journal. Exports to the U.S. fell an alarming 93%, highlighting the severity of the shortfall. We discussed this at length in Sunday's video. The blog jam persists despite signs of diplomatic progress. On the 18th of June, China's Vice Finance Minister Liao Min met with the American Chamber of Commerce in Beijing, emphasizing the need for both sides to, quote, jointly implement the outcomes of their agreed consensus, end quote. Yet the details of what was agreed in London on the 11th of June remains vague, and U.S. officials have not clarified what specific Chinese actions would trigger Washington to ease its own export restrictions. Meanwhile, Beijing has moved to demonstrate goodwill in other areas. Authorities recently tightened controls on fentanyl precursor chemicals, a key ask from Washington. The move came shortly after a meeting between China's Minister of Public Security Wang Xiaohong and the U.S. ambassador, signaling potential cooperation on law enforcement and counter-narcotics. Still, such overtures do little to resolve the deeper economic dependency the U.S. has on China for rare earths. Companies like USA Rare Earth are working to rebuild a domestic supply chain, but executives acknowledge that meaningful alternatives are still years away. Quote, We kind of depend on China, unfortunately, end quote, said USARE CEO Joshua Ballard, adding, quote, It's how we left ourselves over the last few decades, and it's going to take a while to get us out, end quote. For now, America's high-tech industries remain stuck in a holding pattern, waiting for magnets that were promised but have yet to arrive. And if they do not arrive, the London Consensus risks collapsing and the U.S. and China falling back into escalating trade conflict. Next up, Taiwanese President William Lai Chingde has launched a bold campaign for national unity under the banner Unite Taiwan, reaffirming the island nation's sovereignty and seeking to consolidate political control in the face of mounting pressure from mainland China. In the first of a planned series of 10 speeches delivered on Sunday, Lai stated unequivocally, quote, Taiwan is, of course, a country, end quote. Speaking on the theme of nation, he highlighted Taiwan's distinct identity, citing its own territory, population, government, and sovereignty. His remarks underline his administration's stance on Taiwan's de facto independence, a message likely to heighten tensions with Beijing, which considers Taiwan part of its territory. The unity campaign arrives amid a broader push by Lai's Democratic Progressive Party, DPP, to resist Chinese influence across Taiwan's political and civil institutions. As part of the effort, the DPP is leading a high-stakes recall campaign targeting 24 lawmakers from the opposition KMT. If successful, the effort could temporarily hand the DPP control over the legislative yuan and potentially shift the legislative balance for years to come. Under Taiwan's recall system, a vote is triggered when over 10% of eligible voters in a legislator's sign a petition. The recall passes if more than 50% of voters turn out and the majority vote in favor. Recalled lawmakers are banned from contesting the resulting by-election. With 51 out of 113 seats already, the DPP needs just six more to secure a majority, offering Lai's administration a rare chance to break legislative gridlock before the next general election in 2028. Parallel to these political maneuvers, Lai's administration has declared July as, quote, end quote, combining the annual Han Kuang military exercise with urban resilience drills to integrate civilian and military preparedness. The unprecedented joint training effort is designed to strengthen Taiwan's societal resilience in anticipation of external threats, like an invasion from the mainland. Meanwhile, the Ministry of Education is rolling out new teaching materials to deepen national unity among students and raise awareness of Beijing's influence operations. While some critics caution that the initiative may blur the line between civic education and political messaging, officials defend it as necessary for safeguarding democratic values. Of course, Beijing is not happy with any of this. Yesterday, Monday, a spokesperson for Beijing's Taiwan Affairs Office of the State Council issued a fiery statement, expressing, quote, Lai Ching-de's June 22nd speech was full of lies and deceit, hostility and provocation. It deliberately distorted and fragmented history. Brazen Lee promoted the fallacy of Taiwan independence and attempted to concoct a framework for Taiwan independence discourse. He used this to fuel propaganda in pursuit of personal gain. Lai Ching-de's fabrications that violate history, reality and legal principle will only be swept into the trash heap of history. The future of Taiwan can only be decided by all 1.4 billion Chinese people. No matter how hard Lai Ching-de tries, he cannot stop the historic trend toward the reunification of the motherland, a reunification that will and must happen. End quote. Analysts anticipate fresh PLA military exercises around Taiwan sometime in the coming weeks. If you want to be on top of these developments and others related to the world's number two economy, consider subscribing to China Update, hit the bell notification icon and you will be. And if you're getting some value from today's episode, don't forget to hit the like button. With just two weeks to go before the July 24-25 EU-China Leaders Summit in Beijing and Anhui, relations between Brussels and Beijing are under acute strain. European Union officials are sounding increasingly frustrated with China's actions on multiple fronts, from its alignment with Russia's war effort to trade imbalances and market access issues, setting the stage for what many expect to be a tense and unproductive summit. At the heart of growing unease is China's deepening support for Russia. On Monday, EU foreign policy chief Callas declared that, quote, China is the key enabler of Russia's war against Ukraine, end quote, echoing recent NATO language. Speaking after a meeting of EU foreign ministers, Callas warned that China's cyber attacks, interference in democratic processes and coercive trade practices make it, quote, increasingly hard to continue as before, end quote, in EU-China relations. The political concerns are further complicated by economic tensions. According to China's customs data, exports of high-tech goods to the EU surged in May, particularly shipments of batteries, laptops, smartphones and other solar panels. Exports to some smaller member states soared, including a 79.4% jump to Estonia and 70.5% rise to Cyprus, while major economies like Germany and France also saw double-digit increases. The result was a 22% increase in the EU's trade deficit with China for the month, an outcome that Brussels sees as exacerbated by Beijing's unwillingness to open its own markets. Adding to EU frustrations is the roughly 10% depreciation of the currency, the Chinese currency, against the euro this year. The drop, which analysts say has been broadly engineered to boost exports beyond the US market, is viewed in Brussels as another form of unfair trade support. The Yuan index, maintained by the People's Bank of China, fell to 95.49 earlier this month, its lowest point since 2020. The European Commission has already begun to retaliate. As we discussed yesterday, it announced plans to restrict Chinese firms from bidding on EU medical device procurement contracts above 5 million euros, and there are many more investigations pending. Strategically, EU leaders are also preparing for long-term decoupling in sensitive sectors. In an interview with European media, the EU Commissioner for Industrial Strategy called for the bloc to create joint strategic reserves of rare earth minerals to mitigate the risk of supply chain disruptions from China. Diplomatically, Brussels appears to be losing patience. EU officials cited by Hong Kong-based South China Morning Post say Beijing's charm offensive has fallen flat due to a lack of meaningful concessions. European Commission President Ursula von der Leyen has also hardened her tone, with recent speeches and interventions at the G7 indicating that the EU is unlikely to reset relations with Beijing unless it addresses fundamental concerns. As Noah Barkin of the German Marshall Fund noted, Unless China shows a willingness to address Europe's concerns, the summit in July is unlikely to produce any deliverables of substance. With frustrations mounting on both sides and mutual trust wearing thin, hopes for a breakthrough at the upcoming summit are fading. Instead, the July meetings may reinforce the widening divide between Europe and China. The global race to commercialize autonomous ride hailing is entering a new phase, as major players in China and the United States ramp up deployments, expand abroad, and battle regulatory headwinds in the pursuit of a trillion-dollar opportunity. In China, companies like Baidu, Pony AI, and WeRide have made significant strides. Baidu's Apollo Go service completed over 1.4 million rides in the first quarter of 2025 with a fleet of roughly 1,000 robo-taxis. Pony AI and WeRide are expanding rapidly as well, with Pony aiming to reach 3,000 vehicles by 2026. While currently restricted to designated areas in major cities like Beijing and Shanghai, these companies are actively lobbying regulators to expand service coverage. I can say that myself as well as a friend have ridden one of these services in Wuhan, a major Chinese city on the Yangtze River, and while it was a relatively short ride, it was quite impressive. Goldman Sachs estimates China's robo-taxi market could grow from just US$54 million in 2025 to a staggering US$47 billion by 2035, driven by falling hardware costs, improved algorithms, and lower operating expenses. Still, social concerns such as potential job displacement are slowing broader regulatory approval in China even as the technology matures. Across the Pacific, US-based Waymo has become a breakout success. Backed by Alphabet, Waymo now operates over 1,500 vehicles and provides more than 250,000 fully autonomous rides per week in cities like San Francisco. It recently surpassed Lyft as the second-largest ride-hailing provider in the city, according to EPIT data. Many analysts view Waymo's success as a breakthrough moment in the industry, akin to a chat-GPT moment for AI, showing that robo-taxi commercialization is finally viable after years of research and investment. Tesla, another major US player just this week, launched robo-taxi services using modified Model Y vehicles, with a futuristic CyberCab coming in the near future. Analysts suggest Tesla's ability to leverage its EV business and AI training capabilities could eventually make it a dominant force, though its late start leaves it playing catch-up. Both Chinese and American robo-taxi operators are targeting international markets. Waymo is testing robo-taxis in Tokyo, while Baidu, Pony AI, and WeRide have set sights on the Middle East, with Baidu planning to deploy 1,000 Apollo Go robo-taxis in Dubai within three years. Chinese firms are also forming partnerships with Uber to enter Europe and other regions. While US companies benefit from capital strength in advanced ships, Chinese firms hold the edge when it comes to cost efficiency in rapid data collection due to more complex driving environments. According to Bank of America Global Research, these advantages make Chinese robo-taxi players well-positioned to scale quickly and undercut competitors abroad. The fact that these sectors have received massive subsidies from the state will also give them an advantage. Regulatory hurdles remain a challenge. Washington has moved to ban Chinese AV software and hardware starting in 2026, while China's strict data export rules have limited foreign firms' access to the domestic market. Draft guidelines issued last week may provide a path forward for companies like Tesla to process and export automotive data, a crucial step for entering China's market. As geopolitical competition increasingly shapes the sector, Europe and the Middle East are emerging as battlegrounds for influence. Analysts agree that both China and the US are uniquely positioned to lead, but continued government support and global strategy will be key to securing robo-taxi dominance in the decades ahead. Okay, that is today's episode of China Update. Thank you so much everybody for watching. Have a good Tuesday and I will see you for another episode either tomorrow or on Thursday.