---

Discussion

Kate Burvish:

In 2025, the United States imported roughly $308 billion in goods from China and exported about $106 billion, producing a goods deficit near $202 billion. The United States also ran a services surplus of about $33 billion, from airlines, universities, tourism, finance, and professional services. That surplus is economically meaningful, but it offsets only about one-sixth of the goods deficit and roughly one-tenth of America’s global services surplus. It does not erase the bilateral imbalance politically or statistically.

Sam Dewinski:

And “balanced” is not a technical term with one remedy. It could mean fewer imports, more American exports, improved Chinese market access, or rebuilding domestic production in strategic sectors. Those goals can conflict: tariffs may reduce imports while raising costs for American manufacturers, and subsidies may create capacity that costs more than the Chinese alternative.

Kate Burvish:

The more consequential question is where dependence creates bargaining power. A large deficit spread across ordinary consumer goods is different from dependence on a small quantity of gallium, rare-earth magnets, or advanced manufacturing equipment. As International Energy Agency Director Fatih Birol warned, vast economic value can depend on small volumes of highly concentrated critical minerals.

Red Velhouse:

Agriculture shows how a relatively small national exposure can still hurt particular industries. China bought about $8.4 billion in U.S. farm products in 2025—less than five percent of total American agricultural exports. Why can that still be a major vulnerability?

Sam Dewinski:

Because national totals conceal concentrated exposure. China represented about 52 percent of U.S. soybean exports in 2022, and U.S. shipments to China were roughly 22.9 million metric tons in marketing year 2024–25. Yet those shipments represented only about one-fifth to one-quarter of China’s total soybean imports. Brazil supplied about 72 percent through July 2026. China can therefore replace American beans without reducing soybean consumption; the immediate damage lands on U.S. prices, storage, transport, and local elevators.

Kate Burvish:

Sorghum is even more concentrated. China accounted for about 84 percent of U.S. coarse-grain exports in 2022, almost all sorghum. Australia and Argentina can supply part of China’s roughly five-million-ton import demand, but U.S. sorghum has fewer large alternative buyers. Losing China can sharply affect prices and storage economics in the southern Plains, even if sorghum is small in national farm totals. Cotton and pork show similar patterns: China took about 32 percent of U.S. cotton exports in 2022 and is particularly important for pork variety meats and offal, which have limited domestic demand.

Kate Burvish:

That is why the promised $17 billion a year in agricultural purchases from 2026 through 2028 should be judged against shipments, not announcements. The 2020 Phase One agreement is the cautionary precedent: U.S. officials concluded that China did not meet its quantitative commitments, even though purchases rose in some categories. USDA export-sales data, Census trade data, and Chinese customs data will show whether a new commitment is demand or diplomacy.

Red Velhouse:

Sam, rare-earth dependence has been recognized for years. Why has the United States not already built a complete alternative chain?

Sam Dewinski:

Because the warning was old, but the response was incomplete. A 2010 Government Accountability Office review found that China dominated processing and that the United States lacked a complete domestic supply chain for defense-relevant rare earths. A 2016 review again found mining and refining concentrated overseas and criticized the lack of coordination. Mountain Pass’s separation operation had shut down in 1998 after wastewater problems. When American mining resumed, chemical separation, metal-making, alloying, and magnet production had already moved abroad.

Kate Burvish:

The first post-2010 response illustrates the economic trap. The price spike encouraged mines and processing projects, but much investment focused on extracting ore rather than building the entire chain. When prices fell, non-Chinese projects struggled. Chinese producers had lower costs, established technical networks, state-supported finance, and a huge domestic market. The market rewarded cheap integrated supply—not spare capacity for a geopolitical emergency.

Omar Seidren:

The bottleneck is even more severe downstream. In 2024, China accounted for about 60 percent of mined magnet rare earths, roughly 91 percent of refined output, and approximately 94 percent of sintered permanent-magnet production. Mining is the visible part. Separation and magnets are where much of the industrial know-how sits. You can have a non-Chinese mine and still depend on Chinese chemistry or manufacturing.

Kate Burvish:

Construction does not solve the commercial problem. The International Energy Agency estimates that refining projects outside the dominant supplier can require 20 percent to more than 150 percent higher capital costs, while operating costs average about 50 percent higher. If Chinese output keeps prices low, a Western refinery may technically work but lose money. Customers may refuse to pay a resilience premium, and lenders may wait for proof of profitability.

Red Velhouse:

What is different now, and what are the United States and its allies actually building?

Omar Seidren:

Washington is moving further downstream. The Defense Department awarded MP Materials $35 million for heavy-rare-earth separation at Mountain Pass, followed by a $150 million loan in 2025. The Energy Department is supporting a demonstration facility targeting roughly 150 to 1,000 metric tons a year from sources including mine waste and electronic waste. Allied projects include Lynas in Malaysia and Neo Performance Materials in Estonia, with additional efforts across Australia, Europe, Japan, South Korea, Vietnam, France, and the United Kingdom.

Those are meaningful steps, but announced capacity is not operating capacity. The IEA estimates that diversified refining capacity planned for 2035 could equal about two-thirds of expected mined supply, while planned magnet capacity is only about one-third. To cover projected non-Chinese demand, non-Chinese mining, refining, and magnet capacity would need to expand roughly twofold, fourfold, and sixfold beyond planned expansions.

Sam Dewinski:

China’s 2025 rare-earth controls showed why the issue is operational rather than theoretical. Controls on seven heavy rare-earth elements, related compounds, and magnets caused sharp export declines in April and May. Some automakers outside China reduced utilization or temporarily suspended production before licenses were granted and flows recovered. The leverage came not only from a permanent ban, but from uncertainty and administrative delay—a very old form of power wearing a modern industrial label.

Red Velhouse:

Omar, the semiconductor story is often presented as Washington restricting China. What has Beijing actually done in response?

Omar Seidren:

China has expanded domestic subsidies, stockpiling, third-country procurement, equipment development, domestic-content requirements, and procurement preferences for Chinese chips and tools. It has also used export controls or licensing for gallium, germanium, graphite, and antimony. U.S. controls began in October 2022 and expanded by December 2024 to 24 equipment categories, three software-tool categories, high-bandwidth memory, and 140 Chinese entities.

Omar Seidren:

The workaround is real, but it is not equivalent to leading-edge parity. Analysts report that Huawei’s Ascend 910C entered mass production through Semiconductor Manufacturing International Corporation, or SMIC, using a 7-nanometer-class process. SMIC relies on imported deep-ultraviolet lithography, which can mean lower yields, higher costs, and difficulty scaling without extreme-ultraviolet tools. The controls appear to raise China’s costs and slow progress; they have not prevented all advanced-chip production. A chip that can be made is not automatically a competitive ecosystem with high volume, strong yields, advanced packaging, memory, and software.

Kate Burvish:

Beijing is also creating a protected market for substitutes. The third phase of China’s National Integrated Circuit Industry Investment Fund was established in 2024 with registered capital of about 344 billion yuan, or roughly $49 billion. Domestic-equipment requirements and procurement lists certifying Chinese artificial-intelligence chips as secure can accelerate learning by guaranteeing customers. They can also produce inefficient overcapacity. Subsidy can create a supplier before the market proves that the supplier is competitive.

Sam Dewinski:

This substitution campaign predates the latest controls. It reaches back to China’s 2006 science-and-technology program and the 2015 Made in China 2025 strategy. The new controls intensified an existing direction: reduce exposure to foreign chokepoints, use procurement to create domestic demand, and preserve retaliation options in minerals and technology.

Kate Burvish:

The result is selective de-risking with a serious risk of escalation. Agriculture remains relatively tradable because China can often substitute Brazil, Australia, Argentina, or other suppliers. Minerals and advanced technology are different: the United States and its allies are willing to subsidize capacity and restrict commerce because interruptions could affect defense, vehicles, energy systems, and data centers. Every restriction may improve security while accelerating substitution on the other side.

Sam Dewinski:

That is why the January 10, 2027 deadline may produce a narrow bargain without resolving the structural dispute. China could increase agricultural purchases or issue mineral licenses while still objecting to semiconductor controls. Washington could claim reciprocity while retaining export restrictions and subsidies. Temporary relief becomes durable only if it creates institutions, customers, and capacity that survive the next political or price shock.

Omar Seidren:

The best test is whether material moves through the system. For minerals, watch separated oxide and metal output, non-Chinese neodymium-iron-boron magnet production, utilization rates, long-term offtake contracts, and unit costs. For semiconductors, watch domestic shares of lithography, etch, deposition, metrology, electronic-design automation, advanced packaging, artificial-intelligence accelerators, and high-bandwidth memory—along with SMIC and Huawei yields.

Red Velhouse:

The evidence points to selective separation, not complete decoupling. The services surplus is substantial at roughly $33 billion, but it offsets only a fraction of a roughly $202 billion goods deficit. Agricultural exposure is concentrated: China represented about half of U.S. soybean exports in a recent benchmark year, more than four-fifths of coarse-grain exports, and nearly one-third of cotton exports, even though its share of total U.S. farm exports was only about five percent in 2025.

The deeper problem is industrial. Mineral dependence involves refining, metals, alloys, magnets, financing, and customers—not simply mines. Semiconductor competition involves equipment, software, packaging, memory, procurement, and yields—not simply chip design. Announced capacity and political commitments are not the same as delivered output. Western projects may be technically successful but commercially uncompetitive if Chinese prices remain lower.

Two developments will reveal whether the strategy is working: whether non-Chinese rare-earth separation and magnet output becomes sustained, contracted production; and whether Chinese semiconductor capacity improves in yield, equipment share, and volume while access to the most advanced foreign tools remains restricted. For agriculture, count shipments, not promises.

Sources and references for this discussion are
available with the episode at Factolio.com.

---

Sources and References

These sources supported the factual material used in this discussion. Factolio’s panel discussion is AI-generated from researched evidence and is written in original language.

1. U.S. Department of Agriculture, Economic Research Service — Countries and Regions: U.S. Agricultural Trade (DATA)
2. USDA Foreign Agricultural Service — China: Oilseeds and Products Annual, 2026 (PRIMARY)
3. S&P Global — China soybean buying revival boosts US export outlook; tariffs cloud prospects (NEWS)
4. U.S. Government Accountability Office — Critical Materials: Action Needed to Implement Requirements That Reduce Supply Chain Risks (PRIMARY)
5. U.S. Government Accountability Office — GAO-16-699: Advanced Technologies—Strengthened Federal Approach Needed to Help Identify and Mitigate Supply Risks for Critical Raw Materials (PRIMARY)
6. International Energy Agency — Global Critical Minerals Outlook 2025 (DATA)
7. Center for Strategic and International Studies — Building a New Market to Counter Chinese Mineral Market Manipulation (ANALYSIS)
8. U.S. Department of Defense — DoD Awards $35 Million to MP Materials to Build U.S. Heavy Rare Earth Separation Capacity (PRIMARY)
9. U.S. Department of Defense — Office of Strategic Capital Announces First Loan Through DoD Agreement With MP Materials (PRIMARY)
10. U.S. Department of Energy — Rare Earth Elements Demonstration Facility (PRIMARY)
11. U.S. Department of Energy — Funding Notice: Critical Material Innovation, Efficiency, and Alternatives (PRIMARY)
12. International Energy Agency — Global Critical Minerals Outlook 2026: Executive Summary (DATA)
13. International Energy Agency — Rare Earth Elements: Pathways to Secure and Diversified Supply Chains (DATA)
14. International Energy Agency — New projects, partnerships and policies are needed to address supply chain risks for rare earth elements (ANALYSIS)
15. International Energy Agency — Executive Summary: Rare Earth Elements (DATA)
16. U.S.-China Economic and Security Review Commission — 2025 Annual Report to Congress (PRIMARY)
17. U.S.-China Economic and Security Review Commission — U.S.-China Economic and Trade Relations: Year in Review (PRIMARY)
18. U.S. Department of Commerce, Bureau of Industry and Security — Commerce Strengthens Export Controls to Restrict China’s Capability to Produce Advanced Semiconductors for Military Applications (PRIMARY)
19. U.S.-China Economic and Security Review Commission — 2025 Annual Report to Congress: Chinese semiconductor workarounds and Huawei Ascend 910C (PRIMARY)
20. Center for Strategic and International Studies — DeepSeek, Huawei, Export Controls, and the Future of the U.S.-China AI Race (ANALYSIS)
21. Reuters — China rushes to swap Western tech with domestic options as U.S. cracks down (NEWS)
22. Associated Press — China blasts new US rule banning use of Huawei’s Ascend advanced computer chips (NEWS)
23. Reuters — China mandates 50% domestic equipment rule for chipmakers (NEWS)
24. Tom’s Hardware — China adds homegrown AI chips to secure and reliable procurement list (NEWS)
25. Reuters — China’s domestic semiconductor procurement and substitution reporting (NEWS)
26. Reuters — China rushes to swap Western tech with domestic options as U.S. cracks down (NEWS)
27. Center for Strategic and International Studies — Contextualizing the National Security Concerns over China’s Domestically Produced High-End Chip (ANALYSIS)
28. Center for Strategic and International Studies — Where the Chips Fall: U.S. Export Controls Under the Biden Administration from 2022 to 2024 (ANALYSIS)
29. U.S.-China Economic and Security Review Commission — U.S.-China Economic and Trade Relations: Year in Review (PRIMARY)
30. Associated Press — China adds homegrown AI chips and restricts foreign alternatives (NEWS)
31. International Energy Agency — Supply concentration, export restrictions and declining investment put critical mineral security at risk (ANALYSIS)