China’s restrictions on rare earths sends tariff war with Trump back to square one

Just when the trade war between the world’s two largest economies, the United States and China, appeared to have cooled and was nearing a potential truce, Beijing emerged from its trench and fired a new salvo of measures. The restrictions on exports of rare earths and certain lithium battery components announced on Thursday have provoked the anger of U.S. President Donald Trump, who has threatened to impose additional 100% tariffs on China starting November 1. He has also threatened to cancel his meeting with his Chinese counterpart, Xi Jinping, scheduled to take place in South Korea at the end of the month.

The situation is at risk of escalating. After several rounds of negotiations since May that seemed to have eased tensions, the tariff dispute is almost back to square one — roughly to where it stood in April. For now, China has not announced new countermeasures following Trump’s invective on Friday on his social media platform, Truth Social.

In the afternoon, during a meeting with journalists, the U.S. president described the announcement as “shocking” and “unexpected.” “We’re going to have to see what happens. That’s why I made it November 1” he added.

On Sunday, he took a slightly more conciliatory tone in a post on Truth Social, which still carried a hint of threat: “Don’t worry about China, it will all be fine! Highly respected President Xi just had a bad moment. He doesn’t want Depression for his country, and neither do I. The U.S.A. wants to help China, not hurt it!!!” he wrote.

China’s Ministry of Commerce defended the legitimacy of the new rare earth export restrictions on Sunday and blamed its U.S. counterpart for the sudden deterioration in relations. Since the talks in Madrid in mid-September, “the U.S. has continuously introduced a series of new restrictive measures against China,” a spokesperson said in a statement. They cited the recent inclusion of Chinese companies on the U.S. entity control list, Beijing’s addition to a blacklist for lack of tax transparency, and new port tariff surcharges on Chinese vessels.

“Threatening to impose high tariffs at every turn is not the right way to engage with China,” said the spokesperson. “China’s position on tariff wars has been consistent: we do not want to fight, but we are not afraid to fight.”

The Chinese government urged Washington “to promptly correct its wrongful practices, adhere to the important consensuses from the phone calls between the two heads of state,” and “manage differences properly through dialogue, based on mutual respect and consultation on an equal footing.” “If the United States insists on going the wrong way, China will surely take resolute measures to protect its legitimate rights and interests,” it concluded.

On Sunday, Vice President J. D. Vance told Fox News that Trump “appreciates the friendship that he’s developed” with the Chinese president and that they “have a good relationship,” but claimed everyone was “shocked” by China’s actions. “If they respond in a highly aggressive manner, I guarantee you, the president of the United States has far more cards than the People’s Republic of China,” said Vance.

According to the U.S. vice president, if China “is willing to be reasonable, then Donald Trump is always willing to be a reasonable negotiator.” “We’re going to find out a lot in the weeks to come about whether China wants to start a trade war with us or whether they actually want to be reasonable,” Vance continued. “I hope they choose the path of reason. The president of the United States is going to defend America regardless.”

Unexpected move

It’s true that China’s sudden move was both unexpected and forceful. It came on Thursday, the first working day in the People’s Republic following eight days of official closure for National Day. On that day, the Ministry of Commerce and the General Administration of Customs announced a flood of new measures that caught many off guard — including the U.S. negotiators who had met their Chinese counterparts in several European cities and on three separate occasions.

Among other actions, Beijing unveiled a new export control mechanism for rare earths and critical minerals that could disrupt the global trade of these key resources used in cutting-edge technology and defense industries.

Under the new framework, companies will need official approval to export rare earth magnets and other derivative materials containing even minimal traces (less than 0.1% by value) of these elements, including when they originate from abroad. The rules will also apply to products manufactured overseas using Chinese technologies for extraction, refining, or magnet production.

The mechanism is designed to control, beyond China’s borders, the trade of 17 elements over which the country holds near-monopoly dominance in the global supply chain. The tool is almost identical to U.S. regulations used against China, which require other countries to comply with American export restrictions on chips, materials, and advanced equipment containing U.S. technology. “The Americans are going to demand intellectual property rights,” joked a European diplomat based in Beijing on Friday when commenting on the new mechanism.

In Washington, however, analysts see China as leveraging its dominance over these valuable raw materials as a bargaining tool in ongoing trade negotiations. No one can be certain whether Trump will follow through on his November 1 threat; it would not be the first time the Republican has backed down from an aggressive trade stance. The move is also seen as Xi demonstrating to the world that China can strangle global trade to bend it to its interests.

This is significant because the measure does not only affect the United States — whose long-standing dependence on these materials presents another obstacle to Trump’s isolationist “America First” ambitions — but potentially the entire planet.

“While the U.S. controls the tech ‘switch’ of the chips industry, China is asserting control over the critical material ‘switch’ — and it now has a new tool to hit back at firms that side with US tech restrictions or otherwise cross China’s political red lines,” Trivium China analysts wrote in a recent newsletter. “This raises the risk of further disruptions for semiconductor supply chains – and global business more broadly.”

The renewed tensions between the two powers already affected markets on Friday: the main New York Stock Exchange index, the S&P 500, dropped more than 2%, its worst session since April, when Trump launched his global trade war before backing down and granting a 90-day reprieve amid fears of the measures’ impact on the global economy.

Details of Beijing’s new salvo include restrictions on new rare earth elements such as holmium (used in advanced lasers, magnets, and nuclear technology) and erbium (used in fiber optics); export controls on various lithium battery-related items; limits on so-called superhard materials like synthetic diamond powder with multiple industrial applications; and the inclusion of 14 foreign organizations — mostly U.S. and defense-related — on the “unreliable entities” list.

These announcements carry the same forceful, targeted, and multi-domain tone as those made during the height of the trade war months ago. But for the first time, unlike before, China has acted without having been provoked by the White House.

Chinese authorities have provided little explanation, limiting themselves to saying the measures are meant to prevent the dual civil-military use of resources and safeguard national security. “These measures do not target any specific country or region,” a Ministry of Commerce spokesperson said. “The Chinese government is willing to work with all countries to maintain the stability and smooth operations of global industrial and supply chains.”

A show of force

China’s move can be seen as a show of force as the clock ticks down on trade negotiations with the United States. The pause granted by Trump expires on November 10. It also comes at a delicate moment, ahead of a meeting scheduled for later this month between Trump and Xi at the Asia-Pacific Economic Cooperation (APEC) summit, intended to ease tensions between the world’s first and second-largest economies.

The South Korean meeting was announced by the U.S. president following a phone call in mid-September, but Beijing has never confirmed it. After the call, Trump also stated that they had reached an agreement allowing the popular Chinese video app TikTok, which had faced a potential Congressional ban, to continue operating in the U.S.

On Friday, Trump told reporters at the White House that he had not canceled the meeting with Xi — for now. ”I haven’t canceled it, but I don’t know if we’re going to keep it. However, I’ll be there anyway, so I suppose it could happen,” he said.

Rare earth elements have been one of Beijing’s most effective tools since the start of the trade war against Trump’s measures. Chinese authorities are aware of their negotiating power: in 2024, China accounted for 69% of the global mining and refining of the 17 chemical elements classified as rare earths, according to the U.S. Geological Survey. And it holds 40% of proven global reserves and controls, on average, 80% of the various links in the global supply chain, according to China Mining Magazine.

After Washington’s tariff announcements, Beijing responded in April with export restrictions on seven of these elements, forcing the pause in tariffs, which remains in effect. Since then, China has pledged during successive negotiation rounds with the U.S., ongoing since May, to facilitate export licenses for these elements.

When tariffs hit their peak in April, the U.S. imposed additional taxes of 145% on Chinese goods, to which Xi responded with 125% duties on U.S. products. With the pause, those rates were reduced to 30% and 10% respectively, where they remain today.

The average tariff rate stands at 57.6% on U.S. tariffs on Chinese goods and 32.6% on Chinese imports from the U.S., according to the Peterson Institute for International Economics (PIIE), a Washington-based think tank — levels high enough in both cases to significantly affect bilateral trade.

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