The US is on the defensive in its rivalry with China

ON October 10, US President Donald Trump announced 100 per cent additional tariffs on all Chinese imports beginning November 1 after China informed a day earlier that its rare earth metals would be subject to export controls and restricted for military use. Trump also said that there was no point now in meeting Chinese President Xi Jinping at the APEC Summit in South Korea in October-end.

Wall Street reacted strongly to Trump's threat, sending markets spiralling. The S&P 500 dropped 2.7 per cent in its worst day since April 2025. The Dow Jones industrial average fell 1.9 per cent and the Nasdaq composite lost 3.6 per cent.

Within hours, Trump walked back partially on his earlier statement, saying: "I haven't cancelled the meeting, but I don't know that we're going to have it, but I'm going to be there regardless. So, I would assume we might have it."

Considering Trump's waffling as weakness, China went on an offensive, saying that its rare earth export controls were a "legitimate measure" to protect Chinese interests in view of geopolitical instability. It accused the US of undermining the Madrid agreement of September 15, 2025 by imposing additional sanctions on a number of Chinese companies. It asked the US to stop threatening China with high tariffs, saying that China was not "afraid to fight a trade war" and the US should correct its "erroneous" actions, cease aggressive trade restrictions and engage in a dialogue with China.

China's restrictive measures on export of rare earths were similar to the restrictions the US had imposed in earlier years on the export of chips or chip-making equipment to China — whether from the US or from a third country where it was made with US technology. Trump found it galling that the US was now being treated the way it had once treated China.

Trump's critics were ready to pounce on him. John Moolenaar, chairman of the House Select Committee on China, said China's new restrictive measures on rare earths were an "economic declaration of war" against the US and "a slap in the face to President Trump amid his efforts to seek a level playing field." Gregory Meeks, a member of the House Foreign Affairs Committee, said, "They are retaliation for Trump's reckless trade war, where he used tariffs as negotiating leverage. Trump's actions are resulting in expensive consequences for American families."

China believes that Trump's policy missteps have considerably weakened America's negotiating position. China was surprised at considerable aggression and hard talk from the Trump administration in his first term (2017-21) when it attacked Beijing on several political and trade issues (Taiwan, human rights, Hong Kong, aggression against neighbours, trade issues).

In his second term, Trump has been much more indecisive and restrained on China and his focus has shifted from primarily China in the first term to tariffs against all countries now.

Trump's high tariffs against the EU, Japan, South Korea, India and others have disenchanted his allies who have refused to support his policy actions against China and India. More countries from the Global South are joining the BRICS and SCO, the groups which the US considers as opposed to it.

Trump and his team, though putting a bold face, are worried about the adverse impact of the new global tariffs on the US economy, unemployment, inflation and addition of new manufacturing. Trump is keen to strike a "beautiful deal" with China to tide over his domestic economic problems.

Trump had recently said that China was not a geo-political rival, only an economic competitor. Trump's China policy is being driven by his own instincts rather than the advice of competent China hands. Trump has intensified divisions in American society and his xenophobic measures are driving many Nobel laureates, scientists and economists out of the US. Xi is smiling at the weakening of America under Trump and China is trying to attract the tech talent leaving the US.

Chinese officials have also realised that the US has no effective substitute to the rare earths, in which China has a monopoly and some of these are critical for the economy. For instance, dysprosium is needed to make US F-35 fighter jets and used in robotics, drones, electric vehicles, wind farms and yttrium is needed in jet engines, precision lasers and high-frequency radars.

Just as Trump banned the export of US microchips to China in 2019 to cripple Huawei and other firms, Beijing now wants to extract a high price from the US. The Trump administration is investing millions of dollars in new companies to mine these elements, but these efforts will take time.

China is hoping to delay the innovation of a new generation of US fighter jets, radars, submarines and satellites and gain a lead over the US in the technology and arms race. The US' denial of chips won't hurt China so much now as it has achieved considerable progress in its technologies for chip-making.

While Trump is downplaying his rift with China, the latter is in no mood to compromise on the export of its rare earths. China has already made up the loss in its exports to the US by augmenting trade with the ASEAN, Gulf and African countries. China will, therefore, demand stiff terms from the US in resuming its exports of these elements. The terms include the removal of sanctions against the export of high-tech products, Chinese companies and a fresh commitment by the US to not encourage the independence of Taiwan.

Since these will not be acceptable to the US, Trump's ties with China will remain bedevilled with periodic tensions and conflicts.

Given that India's rapid economic growth and military modernisation will require the rare earths in large quantities, India must become atmanirbhar in these elements to thwart the pressure of its adversaries.

Yogesh Gupta is ex-Ambassador to Denmark.