US-China trade tensions have sharply escalated following Chinaโs expanded export controls on rare earth elements (REEs) and former President Trumpโs threat of a 100% tariff on Chinese imports, according to Alicia Garcรญa-Herrero of Bruegel. These developments have shaken global markets, wiping out $1.5 trillion in value, and jeopardizing a planned TrumpโXi meeting at the APEC summit. Chinaโs new REE restrictionsโcritical to defense, semiconductors, and EVsโare likely to disrupt US and global supply chains, affecting companies like Boeing, Tesla, Apple, and TSMC. Both nations are intensifying actions, signaling accelerated economic decoupling and rising geopolitical risk. They write:
An intensification of United States-China trade frictions, marked by a 9 October expansion of Chinese export controls on rare earth elements (REEs), and President Donald Trumpโs subsequent threat of an additional 100% tariff on US imports from China, underscores the deepening mistrust between the worldโs two largest economies. Markets have reacted sharply, erasing over $1.5 trillion in value in only two days. The dispute even threatens a planned 31 October Asia-Pacific Economic Cooperation (APEC) summit meeting between Trump and Chinese premier Xi Jinping.
China controls 85% to 90% of global REE processing capacity, crucial for supply chains including batteries, semiconductors and precision-guided munitions. It has massively upgraded controls announced in April, which covered raw exports of seven rare earths. Five more (holmium, erbium, thulium, europium and ytterbium) have now been added, while restrictions have also been extended to refining technologies, equipment and products containing as little as 0.1% Chinese-processed REEs. Furthermore, planned foreign military or dual-use applications of REEs will now be blocked automatically.
The controls also incorporate elements such as a โChinese personsโ rule that prohibits Chinese nationals from engaging in overseas REE activities without approval, similar to US restrictions on sensitive technologies. […]
As the US suffers from REE shortages โ or the threat thereof โ the US will invest more in sourcing/refining REEs elsewhere. China will continue to reduce its dependence on US technology and the US market, accelerating self-reliance. Global companies, especially in semiconductors, electric vehicles and defence, will face higher costs as they adjust to parallel systems.
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