Trump and Xi may extend their truce, but Canada still faces a rare earth squeeze

WASHINGTON, D.C. — Trade tensions are becoming a familiar problem for Washington and this week President Donald Trump is putting his deal-making skills to the test as he hosts China’s president at the White House.

Xi Jinping arrived in Washington, D.C., on Wednesday, and he and Trump will hold talks on Thursday. They are expected to discuss Iran, Taiwan, and AI safety standards , but the main focus will be on trade — and particularly U.S. access to Chinese rare-earth magnets and processed materials that also feed Canadian supply chains.

The summit comes nearly a year after Xi and Trump forged a trade truce in Busan, South Korea, suspending selected retaliatory measures — including some Chinese export controls on rare-earth magnets and critical materials — and reducing some U.S. tariffs.

Now, that truce is set to expire on Nov. 10, and Trump is seeking an economic victory ahead of November’s midterms. He also must ensure the continued flow of Chinese rare-earth exports to U.S. manufacturers.

Canadian leaders will be watching for any sign of a deal, but trade analysts say Ottawa is likely to lose either way, whether Xi and Trump fail or succeed in coming to an agreement. A collapsed truce could disrupt Canadian manufacturers that rely on Chinese magnets and processed rare earths, while an extension could bring short-term stability but leave Canada dependent on Chinese supply. An extended truce would also leave Canada exposed to a wider U.S.-China trade deal that diverts sales and investment to the U.S.

“No matter what happens, the Canadians are going to be in a position [where] they’re worried about how much of the piece of the pie they’re going to lose,” said Stephen Nagy, senior fellow at the Macdonald-Laurier Institute.

China, pushing for greater stability, wants to extend the truce until the end of the Trump presidency, while the White House is pushing for just a six-month extension.

The rationale for the shorter extension, explained Dominic Chiu, a senior China and Northeast Asia analyst at Eurasia Group, is that the U.S. believes “it gives them more leverage to extract concessions and to continue the momentum to negotiate with the Chinese … in exchange for additional extensions along the way.”

The report on Washington’s Section 301 structural excess capacity investigation against China has reportedly been punted until after the summit, but that probe may be factoring into Trump’s timeline demands.

“Giving more than six months would effectively be indicating that the 301 investigation is null,” said China scholar Anna Ashton, of Ashton Intelligence.

“The U.S. side will want to have those 301 investigation findings as future leverage for the next round of talks,” she added, noting she expects a six-month extension of the truce to result.

Few expect major breakthroughs this week, but most of the trade watchers said a six-month to year-long truce extension is likely. Chiu said he’s mostly anticipating pomp and circumstance rather than tangible deliverables on Thursday. He expects a truce agreement to come closer to the November deadline. Neither Ashton nor Chiu, however, anticipate any concrete Chinese commitments on rare-earth licensing volumes, turnaround times, minimum supply levels, or enforcement.

If the truce lapses, Canadian manufacturers could face more costly and less reliable access to Chinese magnets and processed rare-earth materials. That could increase pressure for Ottawa to de-risk more quickly by building the infrastructure and industry Canada needs to mine and process rare earths domestically.

But there will be no quick Canadian replacement. Building rare-earth capacity takes years of sustained financing, permitting, infrastructure, and technical expertise. The Carney government has already signalled support for expanding the sector, but it will take several years.

“You don’t just open up supply chains in these rare earths quickly,” said Mark A. Smith, CEO of Colorado-based critical-minerals developer NioCorp Developments.

But Reza Hasmath, a politics professor at the University of Alberta, argues that a longer period of stability could be more useful to Canada’s industrial strategy than a supply crisis. A longer truce, he said, would give Canada more time to build the processing capacity and infrastructure it needs.

“From a strictly rare earth perspective, though, I would suggest that the greater the extension, the better it is for (Canada) because it gives manufacturers much more stability, but it also buys us time to develop that industry a bit more,” he said.

More broadly, however, he sees better U.S.-China relations as bad news for Ottawa.

“When Chinese-U.S. relations are terrible, that gives (Canada) the most leverage, and when they are less tense and when there is a greater truce, generally speaking, it’s not to (Canada’s) advantage,” he said.

Hasmath said a truce is still preferable for Canadian manufacturers, but he explained that Washington has more incentive to seek Canadian alternatives when its relationship with Beijing deteriorates.

According to Ashton, no truce or a shorter truce extension could give Beijing more incentive to preserve commercial options with Canada. That could boost Ottawa’s bargaining leverage as it seeks to extend Chinese tariff relief on Canadian canola meal, lobster, and crab, which is set to expire in December.

Nagy cautions, however, that if the U.S. administration takes a harder line on Beijing, Trump may demand Ottawa’s alignment under threat of more tariffs.

But the same stability that protects manufacturers could weaken the political case for building Canadian alternatives, some warned. More predictable Chinese supply could ease the political urgency — and public-financing momentum — to build Canadian processing capacity.

“On the whole, it’s beneficial to industry at large, but it could slow down the momentum for the critical minerals industry in Canada specifically,” said Chiu.

Smith said the underlying case for diversification should survive either way.

“We cannot sit here and be dependent on any single country for any single item. We have to have alternatives,” he said.

But Hasmath and Nagy agree an extended truce could pose another downside: a wider U.S.-China trade deal could undercut Canadian exporters.

Most trade watchers believe Beijing will agree — whether it’s this week or in the weeks to come — to buy more U.S. agricultural goods and Boeing aircraft and that the two sides will announce an intention to begin AI-related security talks. Washington may offer China limited relief on access to lower-grade semiconductors, and it may reduce tariffs on some Chinese imports.

Those possible U.S. commercial wins could hurt Canada, because if Beijing buys more U.S. products, Canadian exporters may lose share in those markets.

“The more the Chinese buy from the Americans, that’s less of our exports going to the Chinese,” Hasmath said, pointing to three sectors that could be hit hard: agriculture, aircraft, and LNG.

The tradeoff is a catch-22, he said. Canada benefits when a truce keeps Chinese rare-earth materials flowing to manufacturers, but it has more geopolitical leverage when Washington needs non-Chinese alternatives.

So this week’s summit will not provide Canada with a win or a simple choice. An extended truce would help manufacturers with rare-earth supplies, but it would also prolong their reliance on China — and possibly weaken Ottawa’s push to build domestic processing capacity.

The test will be how Canada uses any period of stability a truce might bring. Will it use the time to build the infrastructure and domestic processing capability it needs to supply rare-earth materials itself? How it responds will determine whether the next U.S.-China trade spat leaves Canada with more leverage — or bigger supply problems.

National Post

• U.S. and China extend trade truce by two months as Xi met by Trump for start of visit
• How China leveraged its critical minerals dominance over the U.S.

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