Trump hopeful of China deal after rekindling tariffs war

Meeting with Xi will determine whether ongoing tensions spiral into full-scale trade war or yield another truce

KARACHI:

US President Donald Trump has confirmed plans to visit Beijing "fairly early next year," but said he expects to meet his Chinese counterpart Xi Jinping earlier – on the sidelines of the upcoming APEC summit in Gyeongju, South Korea – to secure a "fair" trade deal. High on his agenda will be China's latest export restrictions on rare-earth minerals as well as Beijing's suspension of large-scale purchases of American soybeans and other agricultural goods amid ongoing trade frictions.

"We expect to make some headway," Trump said while speaking alongside Australian Prime Minister Anthony Albanese at the White House last week. "I think when we finish our meetings in South Korea and China, I will have a really fair and really great trade deal," he added.

Trump's remarks have cleared the air about his planned Gyeongju summit with Xi, which had been clouded by uncertainty after the US president rekindled trade tensions with China, threatening to undo progress achieved in four rounds of negotiations between the world's two largest economies.

Renewed tensions flared earlier this month after Trump took to his Truth Social platform to announce a 100% tariff on Chinese imports – effective as early as November 1 – along with sweeping restrictions on US exports of critical software, particularly those linked to semiconductor technology.

What triggered Trump's move? According to US officials, it was China's new export controls on a range of rare earths, battery materials, superhard substances, magnets, and processing technologies. However, that's only half the story. Beijing's decision was reportedly a response to US restrictions on Chinese entities and Washington's targeting of China's maritime, logistics, and shipbuilding industries.

The tit-for-tat measures once again threatened to stall progress made by the two economic powerhouses following the fourth round of negotiations in Madrid and a subsequent summit call between Trump and Xi.

This dramatic flare-up immediately sent shockwaves through global financial markets. Stock indices, including the S&P 500 and Nasdaq, plunged in response. The S&P 500 fell by 2.7%, marking its sharpest single-day decline since April. The Nasdaq, heavily weighted with tech stocks like Apple, Nvidia, and Tesla, fell by 3.6%, while the Dow Jones Industrial Average lost nearly 1.9%.

Investors, worried about the consequences of a renewed trade war, fled to safer assets, while cryptocurrency markets also experienced huge losses. Bitcoin, for instance, fell below $110,000 before recovering slightly to around $113,000.

This trade slugfest, analysts say, indicates how central rare earths have become to the global economy and the geopolitical rivalry between the two global behemoths. China controls over 90% of the global production of refined rare earths, with the US being a major consumer of these critical materials. Rare earths – described as "fossil fuel of the 21st century" – are critical for the manufacturing of technology such as electric cars, smartphones, semiconductors, and precision-guided missiles.

Beijing's Ministry of Commerce defended the export restrictions, saying they were not a ban, but a "legitimate measure" to safeguard national security and stabilise supply chains amid global turmoil. "Medium and heavy rare earths, which have significant military applications, must be controlled carefully in times of global uncertainty," a spokesperson for the ministry said, adding that licences would continue to be granted for civilian uses.

The US views the move as an attempt to leverage China's near-monopoly over critical materials as geopolitical competition heats up. Trump is already exploring new options, cutting deals to break the stronghold. "In about a year from now, we'll have so much critical mineral and rare earths, and you won't know what to do with them," he said after unveiling a $8.5 billion agreement to help Australia develop rare earth projects and secure America's access to those elements.

In the meantime, Trump's new tariffs target Chinese technology components, indicating an expansion of trade confrontation into high-end industrial supply chains. Washington has simultaneously broadened its own export restrictions, blocking China's access to advanced chipmaking tools, AI software, and dual-use technologies. Trump's tariffs were, however, seen by many as "pre-meeting choreography" before his summit with Xi.

Beijing denounced the US measures as an "abuse of national security" and accused Washington of hypocrisy. "While the United States claims to promote free trade, it has repeatedly weaponised export controls to suppress other nations," China's Ministry of Commerce said, referring to an American control list which exceeds 3,000 restricted items – more than triple China's roughly 900 categories. This fact, according to analysts, reflects Washington's wider campaign to curb Beijing's technological rise.

The renewed escalation has raised fears of global supply chain disruptions. Rare earth shortages could drive up manufacturing costs for technology and electric vehicle companies, delay production, and slow innovation. Technology industries face the most immediate risk. Firms may seek alternative supply sources in Africa, Latin America, or South Asia – a shift that could take years and raise costs.

Economists and trade experts say the standoff has evolved from a tariff dispute into a deeper strategic contest for technological supremacy. This is no longer about trade imbalances – it's about who controls the materials and technologies that will define the future economy.

Despite these reciprocal measures, Beijing reiterates it doesn't seek a full-scale trade war with the United States. "We do not want confrontation, but we will not compromise on our core interests," China's commerce ministry spokesperson said. "We urge the United States to work through dialogue to stabilise relations."

Amid this uncertainty spawned by persisting trade frictions, global investors are bracing for ripple effects across supply chains, commodity markets, and industrial sectors. Analysts warn that prolonged hostilities could slow global growth by up to $1.5 trillion over the next three years, shaving 0.5 percentage point off the US GDP.

The trade tiff could also accelerate the global "decoupling" trend, which could be particularly painful for American economy. About 70% of the world's economies now trade more with China than with the US, according to a 2023 analysis by Australia's Lowy Institute. And it wouldn't be easy for Trump's aggressive and coercive policies to reverse this shift in global trade.

Global institutions warn that prolonged US-China fragmentation could undermine decades of economic integration. The International Monetary Fund estimates that full technological decoupling could erode global productivity by up to 5% in the long term.

The rare earth dispute underscores how economic policy has become a frontline in the broader contest for global leadership. Both countries are racing to secure control over the materials and technologies shaping the 21st century – from semiconductors and AI to renewable energy systems.

Although Trump is cutting deals to try to break China's stranglehold on rare earths, his claim that America will have an abundance of the critical minerals in just one year's time may be a fantasy, according to CNN. "China is too far ahead of the world," said John Mavrogenes, an economic geology professor at the Australian National University. "I'd say we're a decade away (from building up the required production capacity), even if we really got serious," he said.

All eyes are now on Gyeongju. The Trump-Xi summit could determine whether the ongoing tensions will spiral into a full-scale trade war or yield another truce – or perhaps a mutually beneficial deal. Both sides have incentives to de-escalate. However, if talks fail to produce an outcome, the consequences will reverberate far beyond, influencing markets, industries, and the balance of global power for years to come.

The writer is an independent journalist with special interest in geoeconomics