On Tuesday, October 14, Beijing made clear that it is prepared to go all the way in its trade confrontation with Washington. In a sharply worded statement, China’s commerce ministry asserted: “If you wish to fight, we shall fight to the end; if you wish to negotiate, our door remains open.”
The message was explicitly a response to U.S. President Donald Trump’s threat, via social media, to impose an additional 100 percent tariff on Chinese goods, effective from November 1, along with export controls on “any and all critical software.”
This posture is at once defiant and calibrated. Beijing is sending a signal not just of resolve, but also of willingness to engage — though on its own terms. The implicit warning: the United States cannot promise talks while simultaneously wielding the threat of sweeping economic coercion. “The U.S. cannot demand talks while simultaneously imposing new restrictive measures with threats and intimidation,” the Chinese commerce ministry said.
The escalation pivots around rare earths — a domain where China holds structural dominance — and signals a distinctly strategic turn in the contest. But the deeper story is about leverage, vulnerability, and how global trade rules are being repurposed as tools of geopolitical competition.
Beijing’s recent move was not its first rare-earth salvo, but it was among the most aggressive. In “Announcement No. 61 of 2025,” China expanded export controls to include five additional rare-earth metals (holmium, erbium, thulium, europium, ytterbium), on top of the seven already under control earlier this year.
The new restrictions require foreign firms to obtain export licenses for products containing even trace amounts of Chinese-origin rare earths (above 0.1 percent) or for items built using Chinese mining, processing, or magnet technologies.
Critically, Beijing is not simply targeting the raw minerals — it is stretching its regulatory grip downstream, into magnets, embedded components, and even semiconductor inputs.
Also, Chinese nationals and companies are barred from supporting overseas rare-earth projects without explicit permission — a move to contain the outward dissemination of technical expertise.
The effective license regime is complex and case-by-case, with a strong tilt toward denying applications linked to defense or advanced semiconductor sectors.
Many of the new rules will take effect December 1, giving some lead time but also constraining planning.
From Beijing’s perspective, these measures are lawful refinements of its export control regime, designed to protect national security and guard against the proliferation of strategic technologies.
Rare earth elements (REEs) are essential for a wide array of high-tech and defense applications — permanent magnets, electric vehicle motors, wind turbines, electronics, and radar/defense systems. China commands over 70 percent of global rare-earth mining, 90 percent of separation and processing, and 93 percent of magnet manufacturing according to recent analyses.
That dominance gives China a choke point in the supply chain that few other countries can quickly replicate.
Export controls like the ones just announced effectively allow Beijing to throttle not just supply, but also the flow of embedded technology and know-how. Many firms outside China rely on Chinese rare-earth inputs, either directly or via intermediate layers, making them vulnerable to licensing delays, denials, or unpredictability.
Still, China’s grip is not absolute. Critics note that these controls are unlikely to be permanent bans; rather, they are strategic tools Beijing can dial up or down depending on diplomatic context.
Thus, Beijing gains a bargaining chip — a latent weapon to use at will in negotiations.
What complicates the picture is that rare-earth processing is capital- and regulatory-intensive, with high environmental costs and stringent safety standards. Building alternative capacity outside China is a multiyear task.
The U.S. and its allies have been trying to expand their supply chains, but the pace of development lags the urgency.
In short: China holds a structural tool of leverage, and it’s now deploying it more forcefully in the U.S.–China rivalry.
Trump’s announcement of a 100 percent tariff on Chinese exports, along with export controls on critical software from November 1, represented a hard pivot from strategic restraint.
The doubling of existing tariffs would swamp current U.S. duties, which already average at least 30 percent on Chinese goods.
China’s retaliatory tariffs currently hover around 10 percent.
The software control commitment is especially notable — it signals that the U.S. would not remain passive in the area of intellectual property, technology, and data flows.
Trump’s move raised the specter of choking not just goods flows, but also digital and tech transfer channels.
However, over the weekend, Trump’s tone softened slightly. In a Sunday post, he said “it will all be fine” and insisted the U.S. wants to “help” China.
That shift suggests a recognition of the risks ahead — to markets, industries, and diplomatic stability.
Even so, the markets already jittered. In the weeks prior, China’s September export data showed resilience, with an 8.3 percent year-on-year jump, the fastest growth since March, surpassing forecasts.
Exports to the U.S. alone reached USD 34.3 billion.
The news triggered volatility in global markets. Many participants viewed the tariff and export-control gambits as heavy-handed and destabilizing.
Tech firms, automakers, defense contractors, and electronics manufacturers are especially vulnerable. Already, Western companies have warned that disruptions in rare-earth supply chains could cascade into delays and cost overruns.
U.S. Treasury Secretary Scott Bessent was sharply critical, accusing China of trying to “pull everybody else down” amid economic weakness at home. Some analysts argue that China’s leverage may backfire — causing global markets to fragment and undermining confidence in Beijing’s governance.
In maritime trade, the conflict is spilling over: both the U.S. and China recently imposed port fees on each other’s flagged vessels, adding friction to supply chains beyond tariffs or export controls. Shipping companies now face uncertainty over which routes, flags, or logistics structures will withstand the exactions.
The escalation comes on the eve of the semi-annual IMF–World Bank meetings in Washington, a forum where financial and geopolitical fault lines often intersect. Many observers believe that Beijing’s timing is strategic — forcing the U.S. to respond under pressure. Perhaps more consequential is the risk to a planned meeting between President Trump and Chinese President Xi Jinping in South Korea later this month.
That summit already hung in the balance after Trump warned there might be “no reason” to meet.
Beijing likely sees the summit as a bargaining moment — but only on its own terms.
Meanwhile, Beijing is signaling it still values dialogue: the commerce ministry confirmed that working-level talks with Washington were ongoing this week. But such negotiations now occur under a cloud of escalating pressure and mutual mistrust.
China’s rhetoric of fighting to the end is partly posture, but there’s calculated intent behind it. In strategic terms, Beijing is leveraging its rare-earth control as an asset in a broader game of coercive diplomacy. The fact that the new curbs apply to embedded components and technologies increases the range of potential pressure points.
At the same time, China is unlikely to push to full-scale sequestration — it needs to keep sufficient breathing room to retract or ease controls as a bargaining gesture. Observers cautioned that these export restrictions may be less permanent edicts than asymmetric pressure levers that can be turned up or down.
In effect, Beijing is signaling: “We have the cards. We may not play them all — yet.” That uncertainty is part of the pressure.
Moreover, by expanding controls before the summit, China is maximizing leverage ahead of negotiations, forcing the U.S. to frame concessions or countermeasures under duress. The December 1 implementation date gives Beijing buffer room to moderate or delay implementation if the diplomatic talks proceed.
In diplomatic messaging, Beijing is also casting itself as upholding trade fairness and resisting coercion. The narrative: China is exercising legitimate regulatory authority and defending its security; the U.S. is overreaching with threats dressed as “negotiation.” That narrative gains more salience if Beijing can maintain calm in domestic markets while the U.S. appears volatile.
Trump’s proposal to double tariffs and impose software export controls marks a bold, high-risk gamble. On one hand, the logic is straightforward: escalate pressure to force Chinese concessions or reset the negotiation dynamics. On the other hand, the risks are extreme.
Tariff hikes at that magnitude would deepen inflationary pressures, slow growth, and unsettle global supply chains. They could also provoke retaliation in sectors where China’s leverage is stronger (e.g. rare earths, semiconductors, tech standards, export licensing). Some U.S. companies, defense contractors included, would face direct disruptions.
There’s also the risk of strategic overreach: if the U.S. demands that China back down on rare-earth controls, and China refuses, the U.S. may find itself militarily weaker in that domain. In other words, the U.S. may threaten escalation where it is less structurally advantaged.
Moreover, strong rhetoric and policy shifts risk unraveling existing trade architectures — alliances, supply chains, WTO norms — in ways that reduce U.S. flexibility elsewhere. The very act of unilaterally imposing huge tariffs and controls challenges the multilateral trading system.
Some analysts warn that the U.S. may misread China’s flexibility. Beijing may signal willingness to negotiate even after taking aggressive steps — and then demand steep concessions. The U.S. may find itself boxed into offering major rollbacks in advanced technology export controls or other areas in exchange for moderation of rare-earth licensing.
In short: the United States may have opened the door to a negotiation in which it has less leverage than it assumed. Given the escalation, a few distinct scenarios now loom. None guarantee a clean resolution, and each carries perils.
In this scenario, both sides back away from extremes and reach a package deal before or at the Xi–Trump summit. China might roll back licensing demands or delay implementation of the strictest rules. The U.S. could moderate proposed tariffs or soften software controls. This path would require face-saving measures for both sides.
This is arguably Beijing’s ideal: it keeps leverage in hand while preserving global stability and offering diplomatic closure. For Washington, it would signal firmness without exploding costs. But the risk is that either side may backslide, reopening the conflict.
Here, China keeps much of its rare-earth framework in place but delays harsh implementation, while the U.S. holds off the dramatic 100 percent tariff escalation. Instead, both sides engage in a series of tit-for-tat steps — port fees, export licensing tweaks, sectoral bans. Over time, the contest grinds on.
This scenario prolongs uncertainty, chilling investment and complicating planning. It may settle into a long, low-grade strategic conflict rather than a sharp resolution.
This outcome would see both sides refusing to yield. China might further restrict exports, deny licenses outright, expand controls into new technologies, or even curtail foreign firms’ operations. The U.S. might double down with broader industrial policy, secondary sanctions, or alliances to build alternative supply chains faster.
Such escalation risks damaging global trade, triggering retaliation from other countries, and damaging firms caught in the crossfire. In the worst case, it could disrupt critical sectors like semiconductors, battery tech, defense hardware — areas of strategic national importance.
The new dynamics affect more than bilateral relations: they hit the heart of global industrial networks. Electronics, automotive, aerospace, renewable energy — all rely on rare-earth materials, semiconductor inputs, and tightly integrated supply chains that cross borders. The specter of licensing interruption introduces uncertainty and spurs firms to diversify or stockpile.
Over time, companies may accelerate efforts to localize or regionalize production. That shift could favor the U.S., EU, Japan, Australia, and others that invest in rare-earth mining, processing, recycling, and alternative tech. But such investments take time, scale, and capital — and success is not guaranteed.
Researchers have begun modeling the structural vulnerabilities embedded in rare-earth trade networks. A recent paper shows that dependencies are particularly acute at intermediate (input) product levels, meaning that shock propagation may amplify weaknesses in industries reliant on embedded rare-earth inputs.
Another framework simulates strategic deterrence under rare-earth disruption, highlighting that institutional signals (like export controls) can trigger nonlinear degradation of dependent systems. These models underscore how sudden policy moves can ripple deeply across sectors and time.
A trade war fought through export controls, technology licensing, and unilateral tariffs stretches and potentially breaks existing norms (WTO, bilateral agreements, non-discrimination). The logic of reciprocity gives way to power politics. Countries will hesitate to trust long-term trading relationships.
Smaller countries and middle powers will feel the turbulence: they may be forced to pick sides, adjust trade policies, or build hedges. The fragmentation of supply chains and globalization trends could accelerate.
What we are seeing is not mere trade friction — it is part of a larger rupture between American-led techno-economic orders and Chinese-led supply chains. Rare-earth dominance gives China a tool to push decoupling, or at least strategic bifurcation. The U.S. is trying to respond by erecting barriers and pushing alternatives, but fast change is hard.
Countries in Europe, East Asia, India, and elsewhere will be drawn into this reordering — deciding whether to align with U.S. supply-side blocs or remain tethered to Chinese industrial ecosystems.
In both countries, internal economic pain and industrial dislocations will create pressure. U.S. firms facing cost shocks and delayed inputs may lobby for relief. Chinese firms that depend on export licensing could find themselves hamstrung. Export restrictions slow foreign sales and make Chinese firms more brittle in international competition.
The political narrative in each country will matter. If either government is seen as recklessly harming domestic interests, the backlash could cut through authority. Both will try to frame the conflict as defense — of sovereignty, security, and national dignity.
We are in a moment of acute risk in U.S.–China relations. The rhetoric is fierce, the tools are escalating, and the underlying structural imbalances — especially in rare-earth supply chains — give China a potent edge. But that doesn’t mean China can dominate unchallenged; it too faces economic, diplomatic, and reputational constraints.
Intense negotiation and signaling in the run-up to any Trump–Xi meeting.
Selective licensing denials or delays, not blanket bans — a sort of calibrated pressure.
Piecemal retaliation from the U.S., particularly in technology or defense sectors.
Volatility in markets and supply chains, possibly normalized over weeks if no full-blown conflagration occurs.
Acceleration of alternative supply chain plans outside China, especially in Western countries and allies.
But that path is tenuous. The structural asymmetries in rare-earth production, the disruptive psychology of tariff escalation, and the erosion of global trade norms all conspire to make missteps highly consequential.
If this contest turns into a protracted war of attrition — with shocks, tit-for-tats, and limited deals — global trade may emerge more fragmented, less efficient, and more vulnerable to geopolitics. In that incipient world, states with command over strategic resources and resilient supply chains gain outsized influence.
