China found Trump’s sore spot

Last week, China’s Ministry of Commerce released a document titled “Announcement No. 62 of 2025.”

But this was not a simple bureaucratic mission. It shook the fragile tariff truce with the United States.

The announcement details sweeping new restrictions on its exports of rare earths, in a move that tightens Beijing’s grip on the world’s supply of critical minerals – and reminds Donald Trump just how much leverage China holds in the trade war.

China has a near-monopoly in the processing of rare earths, crucial for the production of everything from smartphones to fighter jets.

Under the new rules, foreign companies now need Chinese government approval to export products containing even a tiny amount of rare earths and must declare their intended use.

In response, US President Donald Trump threatened to impose additional 100% tariffs on Chinese goods and control exports of key software.

“It’s China against the world. They have aimed a bazooka at the supply chains and industrial base of the entire free world, and we will not succeed,” said US Treasury Secretary Scott Bessent.

On Thursday, China said the United States had “deliberately caused unnecessary misunderstanding and panic” over restrictions on rare earths.

“Provided that export license applications are compliant and intended for civilian use, they will be approved,” added a spokesperson for the Ministry of Commerce.

This week, the world’s two largest economies also imposed new port taxes on their respective ships.

The renewed trade war ends months of relative calm after senior U.S. and Chinese officials negotiated a truce in May.

Later this month, Trump and Chinese President Xi Jinping are expected to meet and experts have told the BBC that restrictions on rare earths will give China the upper hand.

China’s new controls are bound to “shock the system” because they target vulnerabilities in U.S. supply chains, said Naoise McDonagh, a professor of international trade at Australia’s Edith Cowan University.

“The timing really disrupted the type of negotiating schedule that the Americans wanted,” he added.

Rare earth minerals are essential for the production of a range of technologies such as solar panels, electric cars and military equipment.

For example, a single F-35 fighter jet is estimated to need more than 400 kg (881.8 lb) of rare earths for its stealth coatings, engines, radars and other components.

China’s rare earth exports also account for about 70% of the global supply of metals used for magnets in electric vehicle motors, said Natasha Jha Bhaskar of consultancy Newland Global Group.

Beijing has worked hard to gain dominance over global rare earth processing capacity, said Marina Zhang, a critical minerals researcher at the University of Technology Sydney.

The country has developed a vast talent pool in the field, while its research and development network is years ahead of its competitors, she added.

Even though the United States and other countries are investing heavily to develop alternatives to China for rare earth supplies, they are still far from achieving this goal.

With its own significant deposits of rare earths, Australia is seen as a potential challenger to China. But its production infrastructure is still underdeveloped, making processing relatively expensive, Zhang said.

“Even if the United States and all its allies make rare earth processing a national project, I would say it will take them at least five years to catch up with China.”

The new restrictions expand measures announced by Beijing in April that caused a global supply crisis, before a series of agreements with Europe and the United States eased shortages.

The latest official Chinese figures show that exports of essential minerals fell by more than 30% in September compared to last year.

But analysts say the Chinese economy is unlikely to be affected by the decline in exports.

Rare earths make up a very small part of China’s $18.7 billion-a-year economy, said Professor Sophia Kalantzakos of New York University.

Some estimates put the value of exports at less than 0.1% of China’s annual gross domestic product (GDP).

Although the economic value of rare earths to China is tiny, their strategic value “is enormous,” she said, as they give Beijing more leverage in negotiations with the United States.

Although he accused China of “betrayal,” Bessent left the door open for negotiations.

“I believe China is open to discussion and I am optimistic that this situation can be defused,” he said.

In a meeting on Thursday with the chief executive of US private equity group Blackstone, Stephen Schwarzman, Chinese Foreign Minister Wang Yi also stressed the need for talks.

“The two sides should engage in effective communication, properly resolve differences, and promote stable, healthy and sustainable development of China-U.S. relations,” Wang said, according to the ministry’s website.

What China has done recently is “put its ducks in a row” ahead of trade talks with the United States, Professor Kalantzakos said.

By curbing rare earth exports, Beijing has found its “best immediate leverage” to pressure Washington for a favorable deal, Ms. Bhaskar said.

Jiao Yang of the Singapore Management University believes that although Beijing holds the cards in the short term, Washington nevertheless has some strategic options.

The United States could offer to cut tariffs, which would likely be attractive to Beijing as the trade war has hit its manufacturers hard, Professor Jiao said.

China’s economy depends on revenue from the goods it manufactures and exports. The latest official figures show that its exports to the United States fell by 27% compared to a year ago.

Washington may also threaten to impose more trade restrictions on China to hamper efforts to develop its technology sector, Professor McDonagh said.

For example, the White House has already targeted China’s need for high-end semiconductors by blocking its purchases of Nvidia’s most advanced chips.

But experts say it will likely have only limited effects.

Measures targeting Beijing’s tech industry could slow China down but will not “stop it in its tracks”, Professor McDonagh said.

China has shown with its recent economic strategy that it is willing to go to great lengths to achieve its long-term goals, he added.

“China can continue even if it costs a lot more because of U.S. export controls.

“But if China cuts off its supplies of rare earths, that can actually shut down the entire industry. That’s the big difference.”