Trade War

Newsletter 277 - Oct. 12, 2025

Welcome to the 277th edition of Trade War.

So much for the trade truce: China slaps wide-ranging new restrictions on rare earths. Trump calls Beijing’s move “rather sinister and hostile,” and retaliates with planned additional 100 percent tariffs on Chinese goods.

Commerce Ministry spokesperson defends rare earth move as a “legitimate action” while criticizing Washington’s “willful threats of high tariffs.” And in a tit-for-tat response, Beijing plans to start levying port fees on American ships on October 14, the same day the US says it will do the same on Chinese vessels.

World Bank revises China growth upwards but predicts slowdown next year. The property market is in much worse shape than thought, says S&P Global Ratings report. And humanoid robot maker hoping for $6.4 billion IPO in Hong Kong next year.

Notable/In depth ~

• Why China’s tech successes don’t drive rapid economic growth

• County governments “shuffling funds from one pocket to another”

• New book alert: “The Highest Exam: How the Gaokao Shapes China”

So much for a trade truce

So much for a trade truce. The U.S. and China are back to tit-for-tat punitive actions and the planned heads-of-state meeting later this month could be in jeopardy.

It all started earlier this week with rare earths. Remember them? They are the critical minerals used in the production of everything from mobile phones and electric vehicles to anti-missile radar and the production of advanced semiconductors. China controls 70% of global reserves and 90% of global processing of critical minerals.

What else are they useful for? They are Beijing’s trump card whenever it feels like it’s time to put Washington onto its back foot.

On Thursday in Beijing, China’s Commerce Ministry announced restrictions on five new rare earths, including holmium, europium, ytterbium, thulium, and erbium—plus some graphite anodes, lithium-ion batteries, and synthetic diamonds, as well as on products or items containing even trace elements (Chinese) of a range of rare earths.

There were also new limits announced on the overseas sales of equipment and technology used in the processing of rare earths. These restrictions are similar to those Washington has put on the sale of advanced semiconductors (pdf) and the sale of equipment to make those chips to China.

At first glance, this seems like an odd time for Beijing to have made a move like this just before the two leaders were set to meet in South Korea later this month. After all, in the past, before heads of state meetings, both sides have avoided taking any measures that might upset the other.

And the rare earths action earned a swift and outraged response from Trump. Friday Trump called Beijing’s move a “rather sinister and hostile move” and threatened that he might cancel the upcoming leaders’ meeting. He raised tariffs on China to 100 percent and wrote in a post on Truth Social he would impose “Export Controls on any and all critical software.”

China may have been unhappily surprised by Trump’s strong response but its leaders are not in the business of backing down, which would have the unacceptable effect of embarrassing Xi. They also likely believe that they can outlast the U.S. in a long battle, are much better at “eating bitterness” and that Trump anyway will probably eventually pivot once again towards a more conciliatory approach in pursuit of a big deal.

I still think that an eventual meeting between Xi and Trump is likely to happen and that two countries will continue to discuss what each side wants from the other. China might eventually be willing to dial back its latest rare earth controls but only if it were given something large in return. Most likely Beijing will continue pushing for an unwinding of Washington’s tech restrictions, in particular on semiconductors, in exchange for progress on rare earths.

Trump has shown repeatedly that he is capable of quickly changing tack and could at some later point declare that China has proven it is a good partner after all, and declare victory—if some kind of deal can be struck. Trump also has long hinted that he could eventually break with past practice and welcome a lot more Chinese investment into the U.S., something Beijing has apparently been dangling before him.