China is escalating its trade war with the United States to dangerous new heights: a ban on rare earth exports is putting global supply chains under extreme pressure. Is Beijing overestimating its economic resilience?
The U.S. and China are locked in an unrelenting trade standoff. While U.S. tariffs on Chinese imports have soared to 145%, China has virtually halted rare earth exports since announcing the ban on April 4. These critical minerals are essential for building electric vehicles, wind turbines, and military technology.
With this move, Beijing is inflicting significant damage on its own economy. Is China’s leadership truly prepared to destabilize global supply chains and cripple its export engine? Over 150 million of China’s 750 million workers depend directly or indirectly on the export sector, which accounts for 19% of GDP. Beijing’s mercantilism fuels a $1 trillion annual trade surplus—1% of global economic output. Through currency manipulation, capital controls, and systematic patent theft, China has kept this jobs machine running at full throttle.
China’s Collapsing Real Estate
& Heavy-Handed Interventionism
Criticism of China’s economic nationalism isn’t just American bravado. Beijing’s aggressive trade policies target the entire West, with economic powers like Europe long in its crosshairs. Yet, remarkably, Donald Trump’s trade strategy is often dismissed in Europe as reckless saber-rattling.
The narrative paints the U.S. as bumbling adolescents stumbling into conflict, while the Communist Party’s leaders posture as sovereign victims, always in control. Conveniently forgotten is how Beijing’s central planning triggered the collapse of its domestic real estate market.
The real estate sector once served as a stabilizer, churning out millions of vacant apartments. At its peak, it represented 7% of global assets and became a social safety net in a country grappling with high youth unemployment. Its crash forced the government to double down on exports while simultaneously launching the “Dual Circulation” initiative in 2020 to bolster the domestic market.
Reconciling these contradictory goals seems like squaring the circle. But in the Communist Party’s five-year plan, even this economic quantum leap can be conjured. Expect creative accounting to dominate soon: in Q1, China’s GDP reportedly grew by 5.4%, while tax revenue plummeted by 3.5%—economic math, “Made in China“.
China’s Achilles’ Heel
With surgical precision, the Trump administration is slicing into the Communist Party’s export machine—a risky but overdue move. It’s logical, targeting the Achilles’ heel of an adversary that repeatedly encroaches on America’s sphere of influence, as seen with the Panama Canal.
Through its sprawling Belt and Road Initiative, China advances a geopolitical offensive—a soft colonialism backed by repression when push comes to shove. Tibetans and Uyghurs know the consequences of domestic dissent; human rights abuses are Beijing’s last resort when resistance grows. China’s sanctimonious criticism of America’s tough tactics rings hollow.
Correcting Mercantile Imbalances
Trump’s tariff wall, now resembling a temporary embargo, should be seen in Beijing as a serious attempt to correct imbalances in the geopolitical balance of power. But the conflict risks global collateral damage. How will China’s leadership respond to a wave of bankruptcies and mass layoffs in its export sector if it fails to redirect its flood of goods elsewhere?
Beijing shouldn’t assume Europe will passively absorb its surplus, flooding the market with cheap products. The risk of importing China’s jobs crisis is real. Brussels has repeatedly proven adept at raising the drawbridge to shield its internal market from foreign competition.
Searching for Alternatives
While Brussels braces for a potential export surge, Washington is already taking decisive action to break China’s geopolitical leverage. True, China controls about 70% of global rare earth production and processes 80% domestically. But this very dominance is spurring the rapid development of new sources elsewhere.
On March 20, Trump signed the Executive Order “Immediate Measures to Increase American Mineral Production,” hailed as a “Declaration of Independence” from foreign dependency. Leveraging the Defense Production Act and a “National Energy Emergency” (EO 14156, January 2025), the order will dismantle regulatory barriers in mining and accelerate private investment in this critical infrastructure sector.
This strategy includes negotiations to secure Ukraine’s rare earth reserves and the somewhat quirky Greenland discourse, where the world’s eighth-largest rare earth deposits are at stake, drawing attention from major players like the U.S. and EU. Hope also lies in Australia, notably exempt from U.S. tariffs in this sector.
Its mining companies could emerge as major winners in this trade crisis, cementing Australia’s role as a key geopolitical partner for the Trump administration. Through strategic resource alliances, the U.S. could partially close this supply gap and defuse Beijing’s very real threat.
The U.S. is embedding its tariff strategy in a broader push to rebuild American industry. A prime example is Apple’s announcement of a $500 billion investment in its home base, which the White House directly attributes to tariff measures [Hyperlink 9: Source on Apple’s investment]. Other major firms, including TSMC and Stellantis, have also pledged significant new investments in the U.S., signaling a wave of industrial reshoring in response to these trade policies.
Advantage USA
The geopolitical chessboard is harder to read than ever. Even a strategic resource alliance between the U.S. and Russia shouldn’t be ruled out—dialogue between Washington and Moscow has resumed, and America’s gradual withdrawal from Ukraine’s conflict zone opens new negotiating space.
If Trump’s team secures robust resource partnerships, potentially including Russia, China’s leverage would crumble. Moscow’s price would be steep: its close ties to China could fray. Yet China has increasingly relied on Russian energy and resource supplies in recent years.
The interplay of forces is complex, with mutual dependencies ruling out quick fixes. The question is: Which superpower is willing to impose greater hardship on its citizens in this trade war? Or will the resilience of their internal systems decide the outcome?
Are Western democracies, despite their crises, superior to China’s authoritarian model without succumbing to its allure of power and control? Ultimately, Trump’s pressure on China’s weak spots will likely force Beijing to make concessions. A deep economic crisis, compounded by China’s deflationary trends, is something Beijing cannot afford.
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Thomas Kolbe, born in 1978 in Neuss, Germany, is an economist and freelance journalist with over 25 years of experience as an author and media producer. Specializing in economic processes and geopolitical events from a capital markets perspective, his work reflects a libertarian philosophy centered on individual self-determination. He studied in Düsseldorf and Cologne and has served as a speaker for the German Small and Medium-Sized Business Association (BVMW).
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