Dear Fellow Fans of Diplomacy (the game and the statecraft),
Travel abroad doesn’t always go as planned. For example, President Trump’s recent visit to Asia. There was no sign of a breakthrough with President Xi in their meeting in South Korea. While the big issues were discussed – tariffs, rare earth export controls, US semiconductor and agricultural sales – the two countries basically returned to where they started earlier this year, with much unresolved and a long struggle ahead. There may be further high-level talks in 2026, but I strongly doubt we’ll see a grand bargain.
To understand what’s going on, consider one big difference between the two cultures. Peter Fleming’s classic The Siege At Peking wrestles with why the Boxer Rebellion didn’t go differently: why China didn’t simply crush the Western legations and their weak defenses in 1900, with a bigger war following. In his introduction to the book, the late, great journalist David Bonavia notes (echoing Sun Tzu’s The Art of War), “To my mind this is a characteristically Chinese attitude towards warfare…war should be used as an implement of politics and diplomacy, and used sparingly, while countervailing tactics of conciliation and even tribute to the enemy are employed to soften his determination.”
I bounced this cultural/strategic difference off Mike Fabey, author of Crashback: The Power Clash Between the U. S. and China in the Pacific. He added a useful analogy: The West plays Chess, he told me, a straightforward game involving the application of force and usually rapid victory. China plays Go, a more subtle back-and-forth game of maneuver that generally takes longer and is less about crushing the enemy and more about putting him in an untenable position.
So, a US-China trade settlement is NOT just a matter of time, and even if it eventually happens getting there will resemble a game of Go. There will be a series of maneuvers, feints, and posturing, rather than a grand US-China trade bargain (or a Chess-like victory for either side). The PRC, as in Go, will make opaque moves that might only make sense after many rounds of play. Strangely, Trump, who likes to create new problems just to claim that only he can solve them, might be fine with this.
Welcome to the New US-China Normal, which means continued de-coupling as the US finds alternative manufacturing sources and as China moves away from the US as a market and as a source for soybeans. This has four significant implications for aerospace:
1. Jetliner Sales. Trump returned from his Asia sweep with Boeing jetliner orders from South Korea, Vietnam and Malaysia. But hopes for a long-awaited China Boeing order were met with stony silence. Expect Europe and Airbus to continue to take advantage of this situation. Boeing is unlikely to get more than a token part of the China market for years to come. With geopolitics driving sales, the broad outline of a boardgame map becomes clear: Boeing grows its share of the Mideast and Far East jetliner markets; Airbus gets most of China (as long as Europe doesn’t do anything to annoy China) and, thanks to a different Trump foreign policy debacle, most of India. As I argued in a recent Aviation Week column, politicized jetliner sales are generally a bad idea and at best a net draw for either the US or Europe (and, in the future, perhaps a positive for Comac).
2. Comac Jet Component Sourcing. The Trump administration, and the Biden administration before it, has imposed occasional bans on exports of the systems needed to make the C909 and C919 fly. In fact, a permanent ban on PW150 engines grounded China’s MA700 turboprop. This latest round of negotiations means that US export restrictions won’t hobble Comac jet production. Now, only Comac can hobble Comac jet production – they’re not great at building aircraft. But China will emphasize building up its own national supply chain. When they realize that effort is much harder than they think, they will likely look elsewhere – European component suppliers will be better positioned to compete for the next round of jetliner technology sourcing decisions (C929, 939, etc.).
3. National Security. This new, more transactional US-PRC relationship won’t be good for two things: Taiwan and advanced semiconductor export restrictions. Both will be tradable for whatever commercial goal is offered. The nominal China hawks in the Trump administration will simply crumple like cheap suits. In line with this US-China transactionalism, the PRC will also feel increasingly free to ramp up its covert (and not-so-covert) military sales to Russia.
4. Finally, Rare Earths. For some, the PRC’s move to weaponize supply chains with a rare earths export embargo was the precipitating event that led to the latest talks, and that this power has emboldened China. I’m not so sure. Unlike, say, jet engines or avionics, there’s no end user certification with raw materials. China can try to control exports, but once they leave China, it can’t completely stop them from moving between companies and across borders, or from being sold by corrupt PRC entities ignoring the embargo. The price will go up, but there will always be some kind of rare earths spot market.
There’s also the performative aspect of China’s embargoes. Again, think of the game Go – the PRC sends signals and messages, even when there’s no practical effect. Last year the PRC sanctioned US defense companies, including Boeing Defense, but not Boeing Commercial. This move was pointless, except as a message. It’s likely the same thing with the rare earths embargo – the PRC knows that rare earth embargoes against Western defense companies are inherently leaky, since these materials can likely be obtained from other companies and/or countries. But it’s a message they wanted to send, and a card they wanted to play.
The bottom line is more supply chain risks and higher prices for rare earths. US aerospace companies would be wise to buy and stockpile the stuff when they can. But remember that the PRC can’t just kneecap the Western aerospace industry with an embargo, and that despite higher prices, rare earths simply aren’t that big a part of the cost buildup for aerospace systems.
There you have it – the outline of a new, sustained economic and political struggle between the PRC and the US (and, if the Trump administration can stop alienating key allies, this struggle will be between China and a much stronger alliance). It will resemble a game with which the West has little experience. For our industry, there’s more risk than opportunity.
Yours, ‘Til AVIC Wins F/A-XX,
Richard Aboulafia