Economy

Trump’s Tariff Threat: Will China’s Rare Earth Play Backfire, Triggering a Market Crash?

Trump threatens tariffs, cancels meeting with Xi over China‘s rare earth export controls; markets fall.

October 10, 2025, 4:59 PM

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This long-exposure photograph captures the motion blur of a digital stock market reader board displaying glowing green text and prices in a busy financial district of New York City. By Robert Harding Video / Shutterstock.com.

Executive Summary

President Trump threatened new tariffs on Chinese exports and to cancel an upcoming meeting with President Xi Jinping, escalating trade tensions.

Trump’s threats followed China’s expansion of export controls on rare earth elements, essential materials in which China processes over 90% of the world’s supply.

Global financial markets reacted sharply, with the S&P 500 Index experiencing its largest one-day decline since April.

The Story So Far

The current escalation in US-China tensions is rooted in an ongoing trade friction between the two economic superpowers, which President Trump had previously addressed with tariffs and had recently seen a pause. This friction has intensified dramatically following China’s recent expansion of export controls on rare earth elements, a critical component for various high-tech industries where China processes over 90% of the world’s supply, leading Donald Trump to accuse Beijing of attempting to leverage this dominance to “hold the global economy hostage.”

Why This Matters

President Trump’s threats of new tariffs and the potential cancellation of an upcoming meeting with President Xi Jinping, in response to China’s expanded rare earth export controls, signal a significant escalation in U.S.-China trade tensions, threatening to reignite a trade war and introduce substantial global economic uncertainty for critical supply chains, as immediately reflected by a decline in financial markets.

Who Thinks What?

Donald Trump believes China is attempting to hold the global economy hostage by expanding rare earth export controls, views this as a betrayal, and is threatening new tariffs and the cancellation of an upcoming meeting with President Xi Jinping.

China is expanding its export controls on rare earth elements and related refining technologies, mandating compliance from foreign producers using Chinese materials, and leveraging its dominance in these critical manufacturing components.

Global financial markets and investors reacted negatively to the escalating trade tensions, with the S&P 500 Index falling sharply, indicating concerns about trade stability and supply chain security for critical materials.

U.S. President Donald Trump on Friday threatened to impose new tariffs on Chinese exports and cancel an upcoming meeting with President Xi Jinping, escalating tensions between the world’s two largest economies. The move followed China’s recent expansion of export controls on rare earth elements, which Trump characterized as an attempt to leverage its dominance in the crucial manufacturing materials. This broadside sent global financial markets into a decline, with the S&P 500 Index experiencing its largest one-day drop since April.

Escalating Trade Tensions

President Trump expressed his concerns on social media, accusing Beijing of planning to “hold the global economy hostage” through its expanded rare earth export controls. He stated there was “no reason” to proceed with a previously announced meeting with President Xi, which was anticipated to occur in about three weeks at the Asia-Pacific Economic Cooperation (APEC) forum in Gyeongju, South Korea. Beijing had not officially confirmed this meeting.

The President indicated he was weighing a “massive” increase in tariffs on Chinese-made goods, a step that could reignite the tit-for-tat trade war paused earlier this year. Washington views China’s export control measures as a betrayal, according to Craig Singleton, a China expert at the Foundation for Defense of Democracies, who suggested Beijing may have “overplayed its hand.”

China’s Rare Earth Dominance

China’s updated export control list, enacted on Thursday, added five new elements and dozens of refining technologies. Beijing also mandated that foreign rare earth producers using Chinese materials must comply with its regulations. China processes over 90% of the world’s rare earths and rare earth magnets, which are essential components for various high-tech products, including electric vehicles, aircraft engines, and military radar systems.

Trump claimed that China had been sending letters globally about its expanded controls, leading to complaints from unnamed countries. He expressed surprise at Beijing’s actions given what he described as a recent “very good” relationship between the two nations.

Market Reaction and Broader Context

Global financial markets reacted sharply to Trump’s threats. The benchmark S&P 500 Index fell by 2%, marking its most significant single-day decline since April. Investors sought safer assets, driving up the price of gold and U.S. Treasury securities, while the U.S. dollar weakened against a basket of other currencies.

The recent escalation builds on a period of rising economic friction. Earlier in the week, the Trump administration proposed banning Chinese airlines from flying over Russia on routes to the United States. Additionally, the Federal Communications Commission announced that major U.S. online retailers had removed millions of listings for prohibited Chinese electronics.

Outlook

The latest developments signal a significant rupture in U.S.-China relations, casting doubt on the future of economic détente between the two superpowers. As Washington considers countermeasures, the global economic landscape faces renewed uncertainty regarding trade stability and supply chain security for critical materials.