INTERNATIONAL ECONOMICS
CBS
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Volume 3.(10)
US-China Trade War Reignites
The China's commerce ministry announced restrictions on the export of rare earth minerals and related technology citing damage to its national security from exports of the technologies to foreign military. Thus Beijing tightened its grip on the materials that are critical for products such as smartphones, electric vehicles and military equipment like fighter jets. The new rules required government approval for exporing technologies used in minig, processing, recycling rare earth minerals or magnet production. China produces more than 90% of the world’s processed rare earths and controls about 70% of the world’s mining. China's hold on the global supply chain of rare earths which are used to make day to day consumer electronics to military equipment is a striking point of the trade war.
US government retaliated by declaring that all imports from China would be subject to 100% tariffs. By the end of September, China's tariffs on US imports were 33% , while the average US tariff on Chinese goods stood at 58%. Threats of higher tariffs up to 150% have been made, but they are on hold until November 10 in order to achieve an agreement.
The Chinese governments decision to tighten the rare earth export is in retaliation of the US imposing restrictions on chipmaking equipment last month. Fundamentally China’s latest rare-earth restrictions are a calculated geopolitical move, using its control over critical resources to counter US semiconductor export bans and gain leverage in ongoing trade negotiations.
Tensions between the US and China appeared to be reducing in recent months. In an effort to strengthen ties, US lawmakers traveled to China for the first time since 2019 and struck a TikTok agreement that permitted US-controlled ownership of Tik Tok app inorder to avoid US ban, which both parties referred to as a "win-win." However, ongoing disputes over US soybean exports, Russian oil, and chipmaking equipment are still persisting.
US markets initially fell sharply following China's announcement of rare-earth exports. They recovered, after Trump adopted an accommodative stance on social media. Still, uncertainty persists as investors await Beijing's next action. China has threatened to take "resolute measures" to protect its interests, including imposing counter-tariffs or withdrawing from the TikTok agreement, which could exacerbate political and economic tensions.
The recent indications of collaboration were brittle, as evidenced by the resurgence of trade hostilities between the US and China. The US's strong tariff response and China's plan to restrict rare-earth shipments highlight the growing strategic competition for resources and technology. Although both countries have previously expressed willingness in negotiating, their current behavior points more toward a return to economic conflict than to compromise. As the world's two biggest economies traverse this most recent round of their continuous power struggle, global markets and businesses continue to be on edge due to the uncertainty surrounding the scheduled Trump–Xi meeting.
Anaan Fathima T
Econometrics and Financial Technology
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