Trade Clash

Trade Tensions Heat Up

The trade dispute between China and the US just escalated, again. 

China is rolling out further export restrictions on rare earth metals, and the US threatened huge additional tariffs on Chinese imports. 

After last week’s market swings, the White House softened its tone over the weekend but did not go into detail on whether the new tariffs would still go ahead.  

As the world’s two biggest economies battle over the control of supply chains, everything from cars to semiconductors to defense gear is impacted.

What was announced?

China: 

• More export controls on rare earths and tech materials
• Foreign companies need a license from Beijing to export any products containing over 0.1% of rare earths mined in China or processed anywhere using China’s technology.
• Retaliatory port fees on US-owned ships

US: 

• 100% additional tariffs on all Chinese imports starting in November, with China warning of “strong countermeasures”.
• Introduced new export controls on critical software 
• Threatened China with export controls on Boeing airplane parts

What’s the Market Reaction?

Traders are nervous, and the markets high-strung, see-sawing as sentiment shifts. 

• $2 trillion was wiped out of US stocks in a single day on Friday, with S&P 500 down 2.7%. Stocks rebounded on Monday.
• Investors have been moving to safe-haven assets like US Treasuries and gold, which is at record highs
• Rising tariffs also raised fears of fresh inflation, just as central banks hoped to cool prices down.

In short: investors are pricing in higher costs, choppier supply chains, and slower global growth. Trade tensions have made markets jittery but, so far, a major market crash has not occurred.

What Are Rare Earth Metals, Anyway?

They sound exotic, but rare earth metals are everyday essentials. 
They’re a group of 17 elements used to make things like: 

• EV motors and other car parts
• Wind turbines and solar panels
• Aircraft and radar systems
• Computer chips and other parts in smart devices
• Medical devices like MRI imaging

China produces over 60% of the world’s rare earths and controls 92% of the global output in the processing stage. 

It has been building dominance in rare earths since the 1980s and is now able to leverage that market position.

Next Phase of Trade War?

The big question now is whether the conflict will continue to escalate or will cooler heads prevail. 

Possible paths ahead: 

• More retaliation: China could expand export bans; the US could add new tariffs.
• Higher prices: Consumers could face costlier electronics, cars, and goods well into 2026.
• Global consequences: China’s rare earth restrictions apply globally. That could even hinder Europe’s efforts to increase military spending and supply Ukraine.
• Reconciliation: Tensions eased over the weekend, with the US signaling willingness to continue negotiations.  Trade barriers could be rolled back as quickly as they were imposed.