Executive Summary
The Story So Far
Why This Matters
Who Thinks What?
Trade tensions between the United States and China have rapidly escalated, with President Donald Trump accusing Beijing of “hostile” new export controls on rare earths and threatening to restore tariffs to “triple-digit levels.” China, in turn, maintains that Washington’s expansion of curbs on Chinese firms reignited the friction, prompting its measures on the critical minerals essential for a wide range of electronics and semiconductors.
Mounting Tensions
The latest dispute unfolded over the weekend, with President Trump expressing shock at China’s move to unleash sweeping export controls on rare earths. He suggested that China was “becoming very hostile,” leading to his threat of severe tariffs. Beijing responded by vowing “corresponding measures” should Trump act on his latest warning.
These developments have sent ripples through global markets, unnerving industries concerned about production shocks and rekindling fears of a broader trade war. The renewed tensions also jeopardize the progress made during months of trade negotiations and cast doubt on whether a planned meeting between Chinese leader Xi Jinping and Trump in South Korea will proceed.
Despite Trump suggesting he might call off the meeting, Treasury Secretary Scott Bessent indicated Monday that he still expected it to happen. China’s commerce ministry stated Tuesday that it remained open to talks but reiterated that the U.S. cannot pursue dialogue while simultaneously threatening new restrictive measures.
China’s Perspective
According to Chinese experts and government advisors, the current escalation could have been avoided if the Trump administration had not significantly expanded its export control list in late September. Jin Canrong, a professor of international relations at Renmin University and a government adviser, characterized Beijing’s actions as a response to Washington’s “petty manoeuvres.”
Wu Xinbo, dean of the Institute of International Studies at Fudan University and an advisor to the Chinese foreign ministry, highlighted that U.S.-China relations had shown signs of a detente over the summer. However, Washington’s decision to place several thousand more Chinese entities under export restrictions just ten days after a positive phone call between Xi and Trump was seen by China as “extremely malicious” and an act of “bad faith.”
The Chinese commerce ministry echoed this sentiment, citing additional U.S. actions, such as plans to charge fees on Chinese-built ships docking at American ports. The ministry asserted that these actions “have seriously harmed China’s interests and undermined the atmosphere of bilateral economic and trade talks.”
Echoes of Past Escalations
Paul Triolo, a China and tech expert at Albright Stonebridge, noted that the current escalation is reminiscent of the downward spiral in bilateral relations seen in May. He warned that the stakes are now even higher as both sides understand the potential consequences.
Previous periods of de-escalation were often followed by unexpected moves, such as Trump’s ban on Huawei’s AI chips, new export curbs on chip design software, and threats to revoke Chinese student visas. Beijing’s current move to tighten rare earth controls is viewed by Triolo as a “logical” and “proportional” response to the scale of Trump’s actions, rather than an attempt to gain leverage.
Rare Earths and Economic Impact
China holds a near-monopoly on the global supply and processing of rare earths, a group of 17 essential minerals. The new rules not only increase the number of elements subject to Beijing’s export controls but also extend curbs to production technologies and their overseas use, impacting foreign firms using Chinese rare earths or technologies.
These restrictions have sent shock waves through global industries and tech supply chains. Shortages of these critical minerals have already been reported by factories worldwide, from automakers to defense sectors, following China’s introduction of licensing requirements in April. The new rules, which also target rare earth minerals for advanced semiconductors, could potentially slow the global boom in artificial intelligence.
China’s commerce ministry clarified that the tightened rules are not outright export bans, and licenses will be approved for applications meeting requirements. Experts suggest Beijing’s measures mirror export control tactics previously employed by Washington, including those imposed during the Biden administration, which limited the export of chips and chipmaking equipment to China.
Uncertainty Ahead
Wu Xinbo stated that China has been meticulously recording U.S. actions, implying a strategic response. He stressed that the onus is on the U.S. to take concrete steps to improve ties, rather than expecting China to compromise its interests for the sake of a meeting.
President Trump, however, appeared to soften his tone in a recent Truth Social post, stating the U.S. would like to “help China, not hurt it” and adding, “Don’t worry about China, it will be all fine!” Wang Yiwei, another Renmin University scholar, suggested that China is now “fully prepared” to deal with Trump, understanding his tactics and America’s vulnerabilities, and believes the U.S. is currently more anxious.
The current standoff underscores the deep distrust and strategic competition between the world’s two largest economies. With both sides taking increasingly assertive stances, the path forward for de-escalation and the future of their critical trade relationship remains highly uncertain, with significant implications for global stability and economic growth.
