The escalating trade tensions between the U.S. and China over rare earth minerals threaten to upend the global economy in ways few of us fully appreciate – but here's the shocking truth: America might just have the edge, and it's time we unpack why. For those new to this, rare earths are a group of 17 elements crucial for everything from smartphones and electric vehicles to renewable energy tech and military equipment. China controls over 90% of the world's processed rare earths and magnets, giving it immense power. Yet, as analysts warn, Beijing's latest export restrictions could backfire spectacularly, potentially crippling tech industries worldwide. But let's dive deeper into how President Trump and his team are positioning for a counterstrike that could hit China right where it hurts most.
The Trump administration is firmly convinced it wields the stronger leverage in this renewed friction with Beijing, especially after China's bold move on rare earth exports. Initially, Trump responded by slapping on an extra 100% tariff and imposing software restrictions – you can check out the details here (https://fortune.com/2025/10/10/trump-china-tariff-trade-war-rare-earths-software-export-controls/) – targeting a nation that dominates the global supply of these vital minerals. But Trump has teased even tougher actions before now, hinting at measures that could reshape the battlefield entirely.
"But the U.S. has Monopoly positions also, much stronger and more far reaching than China’s," he posted on Truth Social just prior to his tariff announcement. "I have just not chosen to use them, there was never a reason for me to do so — UNTIL NOW!" Since then, however, Trump has softened his language a bit, even admitting that his proposed tariffs might not be viable long-term. Meanwhile, financial experts on Wall Street are viewing his warnings as more of a negotiating tactic, another round in what's been dubbed the "TACO" trade – perhaps a playful nod to the tit-for-tat nature of these disputes.
That said, the White House confirms a scheduled summit between Trump and Chinese President Xi Jinping remains on the calendar, slated for the end of the month during a regional economic gathering in South Korea. It's a glimmer of hope in what feels like an increasingly volatile standoff.
Still, China's rare earth curbs have left observers stunned, with some arguing they could effectively bar any nation from joining the modern digital age (https://fortune.com/2025/10/12/china-rare-earth-export-controls-trump-tariffs-us-trade-war/). These minerals are indispensable for a wide range of technologies, from the batteries in your electric car to the displays on your gadgets. But here's where it gets controversial: On closer examination, Capital Economics analysts point out that Beijing's strategy is more targeted than the initial panic suggests. China economics head Julian Evans-Pritchard and China economist Leah Fahy noted in their Monday report that these controls are likely aimed at strengthening China's bargaining chips, stemming from frustration over Washington's reluctance to ease its own tariffs.
"Whatever the motivation, China’s recent actions were a bit of a gamble and there is a risk that they could backfire," they explained. And this is the part most people miss – the U.S. isn't just sitting back; it has a arsenal of countermeasures that could disrupt China's economy far more deeply.
For instance, imagine the U.S. capitalizing on its grip over the commercial aviation industry by halting shipments of essential parts or whole planes to China. This could ground fleets and delay global travel networks, hitting manufacturing hubs hard.
Moreover, with roughly 90% of laptops and PCs in China running on the Windows operating system, according to Capital Economics, Trump could compel Microsoft (https://fortune.com/company/microsoft/) to suspend sales and updates there. Over time, this might lead to unpatched security vulnerabilities, exposing users to cyber threats. While domestic alternatives exist, the analysts draw from Huawei's experience (https://fortune.com/company/huawei-investment-holding/) to warn that switching could diminish the worldwide allure of Chinese-made mobile devices, hurting brand prestige and sales.
Perhaps even more alarming for China is the dominance of Western firms in advanced manufacturing software – they hold over 70% of the market for chip design tools within China, for example. This includes everything from designing semiconductors to simulating engineering processes, making U.S. controls a potential choke point.
Trump could amplify the pressure by broadening export restrictions on chips and chip-making equipment, even though some advanced tech is already heavily regulated. China still depends on U.S. and allied innovations for these critical components, so tightening the screws could stall entire production lines.
And then there's America's stronghold in global finance. Evans-Pritchard and Fahy highlight how Trump might impose sanctions, locking up Chinese companies' assets in dollars and cutting off their access to the SWIFT international payment network – essentially shutting them out of global transactions.
To amplify the impact, Washington could rally its partners to impose their own trade barriers, preventing China from redirecting exports to other markets and further isolating it from developed economies. Mexico, for one, has already floated tariffs up to 50% on select goods from China and other Asian countries, setting a precedent.
"Hawkish advisors on both sides of the Pacific will undoubtedly be using the current spat as an opportunity to try to lock in deeper US-China decoupling," Capital Economics predicts. "At best, we may return to the uneasy trade truce that had held up until now. At worst, China may find itself cut off from Western markets and technology to an even greater degree than it is today."
This standoff raises some big questions: Is decoupling inevitable, or is there room for compromise? Do you think Trump's threats are just bluster, or could they fundamentally shift global power dynamics? And here's a controversial angle to ponder – what if China's gamble isn't a misstep but a calculated risk to force the U.S. to the negotiating table on terms Beijing dictates? Share your thoughts in the comments: Do you side with the analysts who say this could backfire, or believe China's strategy is smarter than we give it credit for?
