Escalating U.S.-China Tensions: Rare Earth Controls Spark New Trade War Fears

 

Beijing/Shanghai – October 21, 2025

In a move that has sent shockwaves through global markets, China has imposed sweeping export controls on rare earth elements, igniting fresh fears of a renewed trade war with the United States. The restrictions, announced last week, target critical minerals essential for everything from electric vehicles and smartphones to military hardware, underscoring Beijing's growing leverage in the supply chain battle. As U.S. Treasury Secretary Scott Bessent floated the idea of extending tariff truces, Chinese officials fired back, accusing Washington of "deliberately stoking panic" and distorting the measures' intent.

The controls come at a precarious moment, just days before an anticipated summit between U.S. President Donald Trump and Chinese President Xi Jinping. Beijing dominates over 80% of the world's rare earth processing, and the new rules require exporters to obtain licenses for shipments of seven key elements, including neodymium and dysprosium, vital for high-tech magnets. U.S. Trade Representative Jamieson Greer labeled the policy a "global supply-chain power grab," warning it could disrupt industries reliant on these imports. In response, China added five American subsidiaries of a South Korean shipping firm to its sanctions list, escalating the tit-for-tat rhetoric.

A Timeline of Rising Stakes

The dispute traces back to late September, when the U.S. Department of Commerce expanded its "Entity List," blacklisting additional Chinese firms for allegedly circumventing export bans on advanced chipmaking equipment. Beijing viewed this as a breach of a fragile truce forged earlier in 2025, which included 90-day pauses on punitive tariffs. Now, with the latest truce set to expire on November 9, Bessent suggested in a Bloomberg interview that a longer extension—potentially up to six months—could be on the table if China delays the rare earth curbs. "We're not looking for confrontation, but we won't be held hostage," Bessent said, hinting at possible 100% tariffs on Chinese goods if talks falter.

China's Ministry of Commerce, through spokesperson He Yongqian, rejected the overtures as "grossly distorted," insisting the controls are for national security and environmental reasons, not economic coercion. "The U.S. interpretation seriously exaggerates our measures, creating unnecessary misunderstanding and panic," He stated during a press conference reported by the Global Times. The ministry emphasized openness to dialogue but warned that further U.S. actions, like the recent probe into Nvidia for antitrust violations, could prompt reciprocal investigations into American tech giants such as Qualcomm.

Broader Implications for Global Economy

The spat threatens to unravel months of tentative progress. Since spring 2025, both sides have rolled back some measures from the 2018-2020 trade war, including reduced duties on $200 billion in goods. However, analysts warn that rare earth disruptions could add billions to U.S. manufacturing costs. "China's gambit is a reminder: they're playing chess while we're still learning the rules," said Li Wei, a trade expert at the Chinese Academy of Social Sciences. Gold prices surged over 2% on Monday amid safe-haven buying, while oil dipped to May lows on fears of slowed demand from an economic slowdown.

Beyond trade, the controls highlight China's strategic pivot. Huawei's September announcement to double chip production in 2026 signals Beijing's push for tech self-reliance, even as it probes foreign firms for market dominance. Meanwhile, U.S. efforts to onshore rare earth supply—such as a July deal with MP Materials—face years of delays, leaving America vulnerable.

Domestic Resilience Amid Global Strain

At home, China touts economic stability as a buffer. Retail sales grew 4.6% year-on-year through August, driven by "green, smart, and China-chic" products that surged during the recent National Day holiday. Per capita disposable income rose steadily in the first three quarters, supported by a robust job market. Innovations like the world's first wind-powered underwater data center, completed this month, underscore Beijing's green tech ambitions, using seawater for server cooling to slash energy use.

Yet, the external pressures loom large. On X (formerly Twitter), discussions rage: U.S. users decry Trump's "mental lapses" on China policy, while global posts highlight China's 90% homeownership rate as a symbol of internal strength. Trending topics also include Brazil-China pacts on cancer drugs and Japan's hawkish new PM Sanae Takaichi, critical of Beijing.

As negotiators brace for high-stakes talks, the world watches. Will this be a flashpoint for de-escalation or the spark that reignites a full-blown trade war? For now, the rare earth row serves as a stark reminder: in the U.S.-China rivalry, no resource is too small to weaponize.