China Declares Economic War with New Export Controls, Trump Responds With New Tariffs

Back in April, US tariffs on Chinese goods were facing tariffs of nearly 150%. China responded with tariffs that were around 130%. And then starting in May things calmed down a bit. But yesterday China announced new export controls on products containing rare earth elements.

China’s Commerce Ministry said Thursday that foreign suppliers must obtain approval from Beijing to export some products with certain rare-earth materials originating from China if they account for 0.1% or more of the good’s total value…

The controls are the latest from Beijing to flex China’s global dominance of supply chains, especially for cutting-edge industries and defense systems. The new rules signal China is tightening its stranglehold on key industrial bases and technologies as the U.S. and other Western countries aim to build up domestic manufacturing and reduce reliance on China.

“They want to maintain as much of that strategic position as possible,” said Julian Evans-Pritchard, head of China economics at Capital Economics.

One of the things that is odd about this is the timing. Trump and Xi were set to have a face to face meeting in just a couple weeks in South Korea.

The latest restrictions came just weeks before a potential meeting between U.S. President Donald Trump and his Chinese counterpart Xi Jinping. The two leaders are expected to meet in person on the sidelines of the Asia-Pacific Economic Cooperation forum during the last week of October in Gyeongju, South Korea.

While China has been silent on future meetings, Trump had also said he would visit China early next year and that Xi would come to the U.S. at a later date.

So what exactly is the strategic reason for this? The Wall Street Journal reports that Xi Jinping is making a bet that China can gain control of AI technology. One think tank member compared it to a declaration of nuclear war.

The U.S. and other countries are pouring hundreds of billions of dollars into data centers, making AI a key economic engine. China gaining control of the technology would potentially let it catch up in the AI race and upend the world order, experts said.

“It’s an economic equivalent of nuclear war—an intent to destroy the American AI industry,” said Dmitri Alperovitch, co-founder of the Silverado Policy Accelerator think tank. He called it a “blackmail tactic” ahead of a potential meeting between President Trump and Chinese leader Xi Jinping in South Korea in the coming weeks to continue trade talks and didn’t think China will follow through on fully implementing the rule.

In essence, this is probably intended as a bluff aimed at pressuring Trump to further reduce remaining tariffs on China.

While positioned as retaliation for recent U.S. export-control actions targeting Chinese tech companies, Beijing’s decision is a calculated power play, according to people familiar with the Chinese government’s decision-making process. China is trying to strengthen its leverage over Trump—whom it sees as eager to strike a deal—in a bid to extract concessions on tariffs and tech controls, the people said.

During the last round of negotiations with senior American officials in Madrid last month, China’s chief trade negotiator, Vice Premier He Lifeng, asked for the full removal of tariffs and export controls, The Wall Street Journal has reported. The latest rare-earth action, the people said, is a tactic aimed at achieving that goal.

But if this was meant as a bluff, it appears President Trump isn’t eager to capitulate as the Chinese hoped. Today, Trump posted a response to the Chinese move on Truth Social. 

Here’s the full text, which I’ve broken into paragraphs to make it a bit more readable.

Some very strange things are happening in China! They are becoming very hostile, and sending letters to Countries throughout the World, that they want to impose Export Controls on each and every element of production having to do with Rare Earths, and virtually anything else they can think of, even if it’s not manufactured in China. Nobody has ever seen anything like this but, essentially, it would “clog” the Markets, and make life difficult for virtually every Country in the World, especially for China. We have been contacted by other Countries who are extremely angry at this great Trade hostility, which came out of nowhere. Our relationship with China over the past six months has been a very good one, thereby making this move on Trade an even more surprising one. I have always felt that they’ve been lying in wait, and now, as usual, I have been proven right!

There is no way that China should be allowed to hold the World “captive,” but that seems to have been their plan for quite some time, starting with the “Magnets” and, other Elements that they have quietly amassed into somewhat of a Monopoly position, a rather sinister and hostile move, to say the least. But the U.S. has Monopoly positions also, much stronger and more far reaching than China’s. I have just not chosen to use them, there was never a reason for me to do so — UNTIL NOW!

The letter they sent is many pages long, and details, with great specificity, each and every Element that they want to withhold from other Nations. Things that were routine are no longer routine at all. I have not spoken to President Xi because there was no reason to do so. This was a real surprise, not only to me, but to all the Leaders of the Free World. I was to meet President Xi in two weeks, at APEC, in South Korea, but now there seems to be no reason to do so. The Chinese letters were especially inappropriate in that this was the Day that, after three thousand years of bedlam and fighting, there is PEACE IN THE MIDDLE EAST. I wonder if that timing was coincidental?

Dependent on what China says about the hostile “order” that they have just put out, I will be forced, as President of the United States of America, to financially counter their move. For every Element that they have been able to monopolize, we have two. I never thought it would come to this but perhaps, as with all things, the time has come.

Ultimately, though potentially painful, it will be a very good thing, in the end, for the U.S.A. One of the Policies that we are calculating at this moment is a massive increase of Tariffs on Chinese products coming into the United States of America. There are many other countermeasures that are, likewise, under serious consideration. Thank you for your attention to this matter!

DONALD J. TRUMP, PRESIDENT OF THE UNITED STATES OF AMERICA

So he’s threatening to cancel the meeting with Xi and to respond with new tariffs and “other countermeasures.” Given that China remains one of our largest trading partners, the market is responding as you would expect.

Stocks settled decidedly lower after a rapid decline on Friday following President Donald Trump’s threat of higher tariffs on China, in which he accused the country of “becoming very hostile” with its restrictions on rare earth metals, a key resource for the tech and defense industries.

Stocks accelerated selling into the close, with the Dow Jones Industrial Average closing down 878.82 points, or 1.9%, at 45,479.60. The S&P 500 lost 2.71% to settle at 6,552.51, while the Nasdaq Composite fell 3.56% to 22,204.43. The broad-based index’s decline was the largest since April 10. Prior to Trump’s comments, stocks were sizably higher, with the Nasdaq hitting a new all-time intraday high.

The question now is whether either side follows through on these threats or if China eventually gets a deal reducing US tariffs that it wants. We probably won’t have to wait long to see.

Update: That was quick. 

It has just been learned that China has taken an extraordinarily aggressive position on Trade in sending an extremely hostile letter to the World, stating that they were going to, effective November 1st, 2025, impose large scale Export Controls on virtually every product they make, and some not even made by them. This affects ALL Countries, without exception, and was obviously a plan devised by them years ago. It is absolutely unheard of in International Trade, and a moral disgrace in dealing with other Nations.

Based on the fact that China has taken this unprecedented position, and speaking only for the U.S.A., and not other Nations who were similarly threatened, starting November 1st, 2025 (or sooner, depending on any further actions or changes taken by China), the United States of America will impose a Tariff of 100% on China, over and above any Tariff that they are currently paying. Also on November 1st, we will impose Export Controls on any and all critical software.

It is impossible to believe that China would have taken such an action, but they have, and the rest is History. Thank you for your attention to this matter!

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