President Trump is urgently addressing a marked escalation in the U.S.-China trade conflict, particularly with implications for critical technology supplies.
This week, officials in the Trump administration revealed plans to take a more proactive approach in securing “rare earths,” which are essential minerals used in various key technologies, following China’s recent export restrictions.
The new regulations enhance China’s bargaining power in its ongoing trade war with the U.S., as both nations vie for dominance in AI and semiconductor technology.
The tension between the United States and China over high-tech exports has been a long-standing issue, and experts suggest that Beijing could potentially relax these new rules to ease tensions.
However, analysts believe that China’s recent moves indicate an unprecedented willingness to push the boundaries in its relationship with the U.S., especially during a critical time in international power dynamics.
“We’re really walking a fine line here,” said Edward Alden, a senior fellow at the Center for Foreign Relations. He added, “The outcome is uncertain. We could manage to keep things under control, or it might escalate into something unpredictable.”
Negotiations for a trade deal came to a sudden standstill last week when China imposed extensive new restrictions on rare earth minerals and related products.
These restrictions necessitate companies to obtain licenses for products made abroad that contain even small quantities of specific rare earth minerals from China or that utilize Chinese mining methods.
Furthermore, China imposed new export controls on five additional rare earth minerals and various technolgies associated with lithium batteries.
This shift threatens to disrupt numerous high-tech sectors reliant on these materials.
These minerals are crucial for semiconductors, electric vehicles, and the U.S. F-35 fighter jet. By 2024, China is expected to account for nearly 70% of the global rare earth mining, according to Oxford Economics.
Owen Tedford, a senior research analyst at Beacon Policy Advisors, suggested that China sees this move as a strategic tool to compel the U.S. to retract its restrictions. “China recognizes its influence here, largely because alternative supply chains aren’t well established,” he noted.
Historically, China has attempted to tighten its hold on rare earths, previously imposing restrictions on seven minerals in April after the U.S. placed significant tariffs on China and other nations.
While these minerals are found in trace amounts globally, locating adequately large deposits for economical mining remains challenging.
Louise Lu, an economist at Oxford Economics, warned in a research note that even minor supply chain disruptions could lead to significant market reverberations, potentially reducing U.S. growth by at least 1 percentage point over the next two years.
Yet, Lu indicated this estimate might be conservative, failing to capture the potential impact of a deepening bilateral conflict.
The new restrictions from China prompted a fierce response from President Trump, who threatened to impose 100% tariffs alongside new export controls on “critical software.” The renewed friction rattled markets, which had been hopeful for a trade resolution.
Both countries had already made steps to undermine one another’s capabilities in AI and semiconductor production. Washington has tightened export controls on semiconductors increasingly in recent years.
The Trump administration initially restricted NVIDIA’s H20 chip before lifting the limits this summer amid bipartisan criticism. Meanwhile, the Chinese government has acted to prevent its companies from acquiring Nvidia chips, according to the Financial Times.
Trump assured supporters on Truth Social that “everything will be fine” regarding China, but the situation led to further efforts to bolster U.S. access to rare earth minerals.
Treasury Secretary Scott Bessent stated that the situation underscores the necessity for the U.S. to become more self-sufficient or collaborate more closely with allies, particularly when dealing with a non-market economy like China.
The Trump administration has taken significant steps to reshape U.S. industrial policy, including investing in publicly traded companies. This trend, as suggested by Bessent, is expected to continue.
This includes Trump’s approval of a merger between U.S. Steel and Japan’s Nippon Steel, following an agreement that granted the government a “golden share.” Additionally, the Department of Defense acquired about a 15% stake in rare earth mining firm MP Materials.
Recently, the administration also invested in a 10% share of struggling U.S. chipmaker Intel and announced stakes in Canadian miners like Lithium Americas and Trilogy Metals.
Bessent stated that the government aims to establish price floors across various industries and create “strategic mineral reserves.”
“What we’re witnessing is an effort to reinforce domestic supply chains, effectively ‘friend-shoring’ in response to the China situation,” Tedford explained. Yet, he cautioned that building such infrastructures could take time, as China holds a unique advantage due to its geographical and resource wealth.
According to the U.S. Geological Survey, China possesses nearly half of the world’s rare earth reserves—around 44 million tons—while the United States only has 1.9 million tons.
Alden remarked that while the Trump administration may increase funding for U.S. mining operations, the country lacks a comprehensive strategy for achieving self-sufficiency in rare earths.
“These measures highlight how far behind we are in creating a strategy that should have been in place years ago,” he commented on the White House’s actions, referring to them as “quite haphazard.”
Additionally, Trump’s unpredictability might influence how strictly China enforces its new rules and its willingness to risk tougher U.S. retaliation.
“I would be somewhat surprised if the restrictions don’t take effect, but China has indicated that marketing licenses will be issued,” Tedford noted, adding that if China seeks to apply more pressure, it can easily do so.
