China has systematically expanded its leverage over critical global supply chains through a cascade of new restrictions, even as President Trump alternates between threatening massive retaliation and publicly reassuring markets.
On October 9, China unveiled its most sweeping export controls yet on rare earth minerals—materials that power everything from smartphones to fighter jets. The restrictions represent what analysts are calling a “major upgrade” in Beijing’s use of economic leverage.
Beijing now requires export licenses for any product containing even 0.1% of Chinese rare earth materials. This includes products manufactured outside China using Chinese materials or technology — a mirror of America’s own “Foreign Direct Product Rule” that Washington has used to restrict chip exports to China.
China added five heavy rare earth elements (holmium, erbium, thulium, europium, and ytterbium) to export control lists, bringing the total to 12 restricted minerals. Controls now extend beyond raw materials to intellectual property, processing technologies, and manufacturing equipment.
China controls approximately 70% of global rare earth mining and 90% of refining capacity. Beijing will automatically deny export licenses to defense organizations starting December 1, directly threatening US military supply chains.
Related: Pentagon Launches $1 Billion Push to Secure Critical Minerals Supply
“China has crafted a policy that gives it the power to forbid any country on Earth from participating in the modern economy,” warned Dean Ball, a former White House advisor who served in the Office of Science and Technology Policy.
‘TACO’ Trump
Trump responded to these restrictions with his own escalation. On October 11, he threatened an additional 100% tariff on Chinese imports, set to take effect November 1. His Truth Social posts accused China of “a moral disgrace in dealing with other Nations” and suggested their rare earth controls warranted massive retaliation.
Markets reacted violently. The S&P 500 plunged 2.7% — its worst single day since April — erasing $1.56 trillion in market value.
After consulting with Treasury Secretary Scott Bessent about market-calming messaging, Trump reversed course dramatically on his social media platform:
“Don’t worry about China, it will all be fine! Highly respected President Xi just had a bad moment. He doesn’t want Depression for his country, and neither do I. The U.S.A. wants to help China, not hurt it!!!”
Markets surged Monday, with the S&P 500 jumping 1.6% and recovering approximately $872 billion in market value — the index’s best day since May. Chipmakers led the surge, with Broadcom soaring 9.9% and Micron gaining 6.2%.
Bessent told Fox Business that the US and China had “substantially de-escalated” over the weekend and insisted Trump’s planned meeting with Xi Jinping at the APEC forum in South Korea later this month remains on track.
But Beijing had other plans. On Tuesday morning, China sanctioned five US subsidiaries of South Korean shipbuilder Hanwha Ocean: Hanwha Shipping LLC, Hanwha Philly Shipyard Inc., Hanwha Ocean USA International LLC, Hanwha Shipping Holdings LLC, and HS USA Holdings Corp.
The sanctions prohibit Chinese entities from conducting business with these companies, which Trump considers central to his efforts to rebuild American shipbuilding capacity. Hanwha recently acquired Philadelphia’s Philly Shipyard for $100 million and announced plans to invest $5 billion in new facilities.
China’s Commerce Ministry accused the subsidiaries of supporting US government investigations into Chinese maritime dominance. The ministry also launched its own probe into how US Section 301 tariffs impact China’s shipping industry, threatening further retaliation.
Hanwha Ocean’s shares plummeted more than 8% on the news.
The two nations also implemented dueling port fees on Tuesday. China is charging 400 yuan ($56) per net ton on American vessels, matching US fees on Chinese ships. For reference, container vessels range from 50,000 to 220,000 tons — meaning fees could reach millions of dollars per ship.
Hours after these moves, Trump posted new warnings accusing Beijing of “purposefully not buying our Soybeans” and calling it an “Economically Hostile Act.” He threatened to curtail trade further as “retribution,” specifically mentioning blocking cooking oil imports.
The reality
Despite Trump’s earlier reassurances, experts warn that the fundamental tensions remain unresolved.
The December 1 implementation date for most rare earth restrictions gives China nearly 2.5 months of negotiating power before the controls fully bite. Meanwhile, US defense manufacturers already face shortages from earlier Chinese restrictions imposed in April.
“The new restrictions will only deepen these vulnerabilities, further widening the capability gap,” said Gracelin Baskaran, director of the CSIS Critical Minerals Security Program. “China can accelerate the expansion of its military strength at a faster pace than the United States.”
While Bessent projects confidence about upcoming talks, analysts note the administration’s mixed messaging creates volatility.
“Markets woke up Monday to the smell of détente,” said Stephen Innes of SPI Asset Management. “But let’s be clear: this isn’t détente, it’s negotiation theatre.”
Even products manufactured outside China now require Chinese export licenses if they contain trace amounts of Chinese rare earths or underwent processing with Chinese technology, giving Beijing unprecedented reach into global supply chains.
What’s next
Looking ahead, the Trump-Xi meeting in South Korea will be a critical test. Both sides appear to want the meeting to proceed, but the path to de-escalation remains unclear.
China’s commerce ministry emphasized Tuesday that it remains open to dialogue while insisting “the US cannot seek dialogue while threatening new measures.”
For American industries dependent on rare earths — including defense contractors, semiconductor manufacturers, and electric vehicle producers — the clock is ticking toward December 1, when China’s most severe restrictions take effect.
Bessent struck a defiant tone Monday, saying China has “pointed a bazooka at the supply chains and the industrial base of the entire free world” and declaring “we’re not going to have it.”
But with China controlling 90% of rare earth processing capacity, Beijing appears to be betting it holds more cards in this high-stakes game.
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One Response
His Truth Social posts accused China of “a moral disgrace in dealing with other Nations” and suggested their rare earth controls warranted massive retaliation.
DT started this escalation and China has been playing the long game well before he came along. “Moral disgrace in dealing with other Nations,”?…..I think we know who is really doing that and Xi’s playbook is a novel compared to DTs, who only has a one liner….tariff, tariff, tariff…..