China has found Trump’s pain point

Last week, the Chinese Ministry of Commerce published a document called “Announcement No. 62 of 2025.”

But this was not just a bureaucratic letter. It shook up the fragile tariff truce with the United States.

The announcement detailed sweeping new restrictions on rare earth exports in a move that will tighten Beijing’s grip on global supplies of critical minerals and reminded Donald Trump of how much influence China has in the trade war.

China has a near-monopoly on the processing of rare earths, which are vital to the production of everything from smartphones to fighter jets.

Under the new rules, foreign companies now need approval from the Chinese government to export products containing trace amounts of rare earths and must declare their intended use.

In response, US President Donald Trump threatened to impose 100 percent additional tariffs on Chinese goods and impose export controls on important software.

“This is China versus the world. They’ve pointed bazookas at the supply chains and the industrial base of the entire free world, and we won’t let that happen,” said US Treasury Secretary Scott Bessent.

China on Thursday said the United States was “deliberately causing unnecessary misunderstanding and panic” over rare earth restrictions.

“Applications for export licenses will be approved provided they are compliant and intended for civilian use,” a trade ministry spokesman said.

This week, the world’s two largest economies imposed new port fees on each other’s ships.

The flare-up in the trade war has brought an end to months of relative calm after top US and Chinese officials agreed to a ceasefire in May.

Trump and Chinese President Xi Jinping are expected to meet later this month, and experts told the BBC that rare earth restrictions would give China the upper hand.

Naoise McDonagh, an international business lecturer at Edith Cowan University in Australia, said China’s new controls should “shock the system” because they target weak points in American supply chains.

“The timing has really disrupted the timeline of negotiations 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, it is estimated that a single F-35 fighter jet requires more than 400 kg (881.8 lb) of rare earth elements for its stealth coatings, engines, radars and other components.

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

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

He added that the country has created a large talent pool in this field and its research and development network is years ahead of its competitors.

While the United States and other countries are investing heavily to develop alternatives to China in supplying rare earths, they are still far from achieving this goal.

Australia, which has its own large rare earth deposits, is seen as a potential rival to China. However, production infrastructure is still underdeveloped, making processing relatively expensive, Ms. Zhang said.

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

The new restrictions extend measures Beijing announced in April that caused global supply shortages before a series of deals with Europe and the United States eased the shortages.

The latest official figures from China show exports of critical minerals fell more than 30% in September from a year ago.

However, analysts say the Chinese economy is unlikely to be hurt by the decline in exports.

Professor Sophia Kalantzakos from New York University said rare earth elements make up a very small part of China’s $18.7 trillion annual economy.

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 is very small for China, their strategic value is “very large” as they give Beijing greater leverage in talks with the United States, he said.

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

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

In his meeting with Stephen Schwarzman, CEO of US private equity group Blackstone, on Thursday, Chinese Foreign Minister Wang Yi also emphasized the need for talks.

“The two sides should communicate effectively, appropriately resolve differences, and promote the stable, healthy and sustainable development of China-US relations,” Wang said, according to the ministry’s website. he said.

Prof Kalantzakos said what China had been doing recently was “getting its ducks in a row” ahead of trade talks with the US.

In curbing rare earth exports, Beijing has found the “best immediate tool” to pressure Washington for a positive deal, Ms. Bhaskar said.

Singapore Management University’s Jiao Yang believes that while the cards may be in Beijing’s hands in the short term, Washington has some strategic options.

Prof Jiao said the US could offer to lower tariffs, which could be attractive to Beijing as the trade war has hit manufacturers hard.

The Chinese economy depends on the income from the goods it produces and exports. The latest official figures show the company’s exports to the US are down 27% compared to a year ago.

Prof McDonagh also said Washington could threaten China with further trade restrictions to hinder its efforts to develop its technology sector.

For example, the White House targeted China’s need for high-tech semiconductors by blocking the purchase of Nvidia’s most advanced chips.

But experts say this will likely have only limited effects.

Prof McDonagh said measures targeting Beijing’s tech industry could slow China down but “won’t stop it completely”.

The official added that China has shown with its latest economic strategy that it is willing to make some effort to achieve its long-term goals.

“China can move forward under U.S. export controls, even if it costs much more.

“But if China cuts off these rare earth resources, that could actually shut down everyone’s industry. That’s the big difference.”