Trade Truce Shatters as U.S. and China Clash Over Rare Earths and Software

What Happened

The uneasy calm in U.S.-China trade relations faced challenges this week as President Trump announced a 100% tariff on all Chinese imports and new export controls on what the administration calls ‘critical software.’ These measures, set to take effect on November 1st, come just days after China imposed aggressive new restrictions on rare earth metals. These are crucial resources for everything from smartphones and missiles to EV batteries.

Under the new Chinese rules, foreign companies producing goods that include Chinese rare earths must get approval before exporting them. This includes U.S. defense contractors and tech firms. Trump accused China of exploiting its rare earths monopoly and said there is “no reason” to meet with Xi Jinping ahead of their planned summit later this month.

The tariffs and tech restrictions mark the most severe escalation in months. Both countries had agreed back in June to loosen rare earth trade limits, but that agreement has now been shredded. Adding fuel to the fire, China also launched an antitrust investigation into U.S. chipmaker Qualcomm’s recent acquisition of Israeli firm Autotalks. The move is widely seen as economic retaliation.

Why It Matters

This is not just another tit-for-tat in a long trade dispute. It is a direct clash over control of the materials and software that power modern technology. While rare earths are not geologically scarce, China controls 60% of global mining and more than 90% of processing. The United States has reserves but lacks the industrial capacity to compete in the short term.

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By tightening access to these materials, China is using its dominance to gain leverage in negotiations. The United States is responding where it still holds an advantage, using tariffs and software restrictions to apply pressure through tech and market power.

Trump’s refusal to meet Xi early also reflects a harder stance. With elections approaching and global tensions rising, both leaders appear more focused on shoring up support at home than seeking common ground.

How It Affects Readers

If you work in tech, defense, or manufacturing, or invest in companies that do, the consequences could be swift. Rare earths are embedded in everything from iPhones to fighter jets. Supply disruptions, higher costs, and tighter regulations are likely to ripple through the system. U.S. companies that rely on Chinese materials or markets could see shrinking margins, delayed production, or government pressure to find alternatives.

Although consumers might not feel the hit right away, higher production costs could lead to more expensive electronics and EVs down the line. Tariffs are also inflationary by nature. A 100% duty on Chinese imports means importers will either absorb the cost or pass it on.

For investors, the market reaction is already underway. Stocks dropped across major indexes, particularly in tech. Gold and U.S. bonds rose as traders fled to safe havens. U.S.-based rare earth producers saw their shares surge on hopes of a domestic supply revival. However, scaling up that capacity will take time and investment.

The latest episode in U.S.-China trade relations is another reminder that economic power is now exercised through pressure points, not open markets. When a country blocks a resource or locks down a technology, it is not just policy. It is strategic. The tools may seem economical, but the impact is more akin to a controlled burn.

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