The trade war between the two major powers, the United States and China, is like a boxing match, with each side exchanging blows, a scenario that has become a common occurrence. Suddenly, out of the blue, China has thrown a significant punch.
The Chief Economist of the “Milken Institute,” headquartered in California, William Lee, used this analogy to describe the latest developments in the economic confrontation between the US and China.
On October 9 (last Thursday), China announced that it would strengthen its export control over rare earth minerals starting from December 1. These critical minerals are essential for modern manufacturing industries, ranging from automobiles, electronic products to advanced weapon systems, and Beijing almost monopolizes the global rare earth supply. The Chinese Ministry of Commerce also announced that it would implement export controls on battery materials (related to lithium batteries and artificial graphite anode materials) starting from November 8.
Although China has been reducing its rare earth supply to other regions since April, this new action expands the restrictions to any product containing 0.1% Chinese rare earth elements or products using Chinese technology in their production process.
US President Trump quickly responded on October 10 (last Friday), calling the Chinese regime “very hostile.”
He wrote on the “Truth Social” platform: “This is truly astonishing. Not just for me, but for all the leaders of the free world.”
President Trump then announced that the scheduled meeting with Chinese leader Xi Jinping during the Asia-Pacific Economic Cooperation (APEC) summit in South Korea was now “pointless.”
Later the same day, Trump promptly announced imposing 100% additional tariffs on Chinese goods and enforcing export controls on all critical software, effective November 1.
On October 12 (Sunday), the Chinese Ministry of Commerce urged to “resolve concerns through dialogue” and warned that if President Trump continues with his actions, China will retaliate.
Alexander Liao, who grew up in the Chinese military system, later became a senior journalist and the chief of the Hong Kong branch, told the Epoch Times that the latest move by the Chinese regime was calculated.
He expressed that China was trying to take advantage of the US government shutdown but this move did not improve Beijing’s position in trade negotiations. On the contrary, it will strengthen the West’s determination to achieve rare earth independence and lead to a world trade alliance without Beijing, thereby deepening China’s isolation.
American businessman Mike Sun also believes that the Chinese regime is trying to exploit the ongoing US government shutdown. With decades of experience advising foreign investors and traders operating in China, Mike Sun, who used a pseudonym to protect himself from potential retaliation by the Chinese regime, voiced his concerns to the Epoch Times.
He stated that both China and the US hold trump cards – China with rare earth and the US with AI chips – but these are likely to lose their effectiveness as both countries strive towards self-sufficiency.
Mike Sun highlighted that China is aware of the US developing its rare earth supply chain, so the Chinese regime is maximizing its influence while the rare earth card is still effective.
The US holds a global leading position in the field of AI chips technology, with most advanced AI processors designed by US companies such as Nvidia and AMD based in California. During the US-China trade negotiations, China repeatedly sought more access to such technology, which is considered crucial for achieving its goal of global dominance in advanced manufacturing.
Mike Sun anticipated that the latest move by Beijing to restrict rare earth supply will kick off a new round of escalated negotiations between the US and China.
All experts interviewed by the Epoch Times concurred that the conflict between the US and China has reached a new height and will only escalate further. They added that both sides are causing pain to each other and to themselves, and it is a matter of endurance.
President Trump reassured on Truth Social on October 12, stating, “Don’t worry about China, everything will be alright!” and added, “The US wants to help China, not hurt China.”
Alexander Liao noted that the new export control on rare earth by the Chinese regime does not bring significant changes compared to previously because enforcing the regulation on products with 0.1% rare earth component is very difficult. The difference now lies in Beijing’s much tougher stance on its export controls.
He expressed that the Chinese regime has had this plan all along to cause maximum harm to the US at the right moment.
As early as May this year, Alexander Liao told the Epoch Times that the Chinese regime would employ delaying tactics and launch attacks early next year to impact the US economy and challenge President Trump in the midterm elections.
He quoted the ancient Chinese military strategist Sun Tzu saying, “The supreme art of war is to subdue the enemy without fighting.” The timing, location, and method of war are key factors in maintaining the initiative.
He mentioned that Beijing perceived the US as vulnerable due to the government shutdown and believed that taking action now would further harm the US.
During the federal government shutdown, around 750,000 federal employees were forced to take leave without pay until the government reopened, which could affect nearly 2 million civilian employees and 1.3 million military personnel if the shutdown continues beyond October 15. However, President Trump instructed the Pentagon to ensure military personnel receive their pay.
Mike Sun remarked that the US government shutdown could be seen as an external factor leading to China’s actions on October 9. Internally in China, economic stagnation puts pressure on Xi Jinping, requiring him to show strength to consolidate his authority within the party.
In a few days, the Chinese Communist Party will convene its annual Central Committee Plenary Session, where hundreds of Central Committee members will gather from October 20 to 23 to formulate China’s next five-year plan.
Sun noted that the new five-year plan (2026-2030) is crucial because the Chinese regime faces significant economic challenges amid heightened international geopolitical tensions.
Data from the General Administration of Customs of China showed that since the US-China tariff dispute began in April, China’s exports to the US have declined by over 10%.
William Lee highlighted that China’s domestic demand remains “very weak,” with lackluster retail sales, private investment, and real estate market data. He emphasized that these indicators are not directly controlled by the government.
William Lee, head of Global Economic Advisors consulting firm, told the Epoch Times, “This is a desperate moment for China because economic measures are not working, and they must demonstrate a very tough foreign policy line.”
“They won’t say ‘attack Taiwan,’ but they’ll say ‘we will directly strike at the weakest link in the US.’ And that weak link is rare earth.”
For the past six months, China has highly relied on rare earth as a trump card in the US-China trade negotiations.
This trump card is effective due to the scarcity of these critical minerals impacting almost all products with electronic components, thus affecting US consumers. Additionally, the current US economic growth heavily relies on artificial intelligence.
A report by J.P. Morgan, a financial powerhouse based in New York, released at the end of September titled “Eye On The Market” dated 09/24/2025, mentioned that since the introduction of the AI robot ChatGPT in November 2022, most of the returns, profit growth, and investment activities of the S&P 500 can be attributed to AI.
William Lee stated, “Nearly all growth in the US stock market relies on the AI sector, and rare earth is a critical pillar.”
On October 10, due to concerns that China’s rare earth controls would impact the growth of AI companies, the US stock market experienced a decline. Both the S&P 500 and the Dow Jones Industrial Average fell by 3%.
Nvidia’s stock price dropped by 6%. The company’s most advanced chips require rare earth elements. A Nvidia spokesperson declined to comment on the impact of China’s latest export controls on their business.
William Lee mentioned that President Trump’s vulnerability lies within the US market.
“The tariff strategy may work again, but this time, he cannot back down. This time, he cannot simply make concessions on the tariff issue because of (China’s) promise.” He emphasized.
The promise he referred to was China’s agreement in June at the London conference to supply rare earth to the US. However, such agreements had been reached in May, but China later failed to honor its commitments and withdrew.
Mike Sun remarked that the US’s short-term measures, such as imposing export controls on advanced AI chips and imposing high tariffs on China, remain effective. However, in the long run, the US must establish its independent supply chain in critical sectors.
The White House has recently increased its support for domestic rare earth companies, including lowest-price assurances, downstream procurement agreements, and even profit protection measures.
Mike Sun analyzed that Washington and Beijing have entered a new round of trade negotiations, with heightened hostility, focusing on rare earth and AI chips.
He predicted, “In the end, rare earth prices will rise, and AI chip prices will also rise.”
Since the outbreak of the global COVID-19 pandemic, China’s economy has increasingly become isolated.
Many Western countries have started imposing tariffs on Chinese goods to curb Beijing’s massive influx of cheap products into their markets. Simultaneously, the Chinese regime is under pressure to address the sluggish real estate market and heavy debts of local governments. However, with insufficient domestic demand in China, it is challenging to absorb the products produced by export enterprises that are struggling to survive.
China’s strengthened rare earth export controls impact not only the US but the entire world.
Mike Sun believes the world is once again evolving into two opposing camps, much like during the US-Soviet Cold War in the 1950s. However, this time, Russia is China’s junior partner.
Alexander Liao anticipated that after the Fourth Plenary Session of the 20th Central Committee of the CCP is held in late October, the Chinese government’s policy direction will become clearer, followed by a clearer stance from the US.
“If the current trend continues, an alliance between the US, Europe, and Japan is inevitable,” he mentioned, “This means China will be more isolated.”