US President Donald Trump issued a warning yesterday about increasing tariffs on Chinese exports and potentially canceling a planned meeting with President Xi Jinping, causing turmoil in both markets and diplomatic relations between the two largest economies globally. Trump, who is scheduled to meet Xi in South Korea in approximately three weeks, expressed concerns on social media regarding what he perceived as China’s attempt to manipulate the global economy through its recent expansion of controls on rare earth element exports. These elements are crucial for tech manufacturing and China holds a dominant position in this market.
Trump indicated that there was now uncertainty surrounding the anticipated meeting with Xi, which had not been officially confirmed by Beijing. This development marked a significant setback in relations between the two countries and raised doubts about the sustainability of the economic truce between the US and China.
The US President, known for his use of tariffs as a tool in trade negotiations, mentioned the possibility of imposing a substantial increase in tariffs on Chinese goods. Such a move could reignite the trade war that was temporarily halted earlier this year as both nations engaged in delicate diplomatic efforts. China has consistently urged the US to abandon unilateral trade restrictions, citing adverse effects on global trade.
The announcement of potential tariff escalation had an immediate impact on global financial markets, with the S&P 500 Index experiencing a significant 2% drop, the largest single-day decline since April. Investors sought refuge in safe-haven assets like gold and US Treasury securities, leading to a weakening of the US dollar against other major currencies.
Experts expressed concerns that Trump’s statements could signal the end of the tariff truce, attributing this escalation to China’s perceived betrayal through its recent export control measures. Trump highlighted China’s communication to various countries about imposing export controls on all aspects related to rare earth production, leading to discontent among unnamed nations and straining the previously positive relationship with China.
In response to China’s actions, Trump condemned what he referred to as a “hostile order” and hinted at possible financial countermeasures as the President of the United States. He mentioned receiving complaints from countries affected by China’s decisions and expressed disappointment in the turn of events, indicating that the planned meeting with President Xi might no longer serve a purpose.
The White House and the Chinese embassy in Washington refrained from immediate comments on the matter. The US Trade Representative’s office declined to provide details on potential countermeasures, while the US Treasury did not respond to inquiries. Recent tensions were further exacerbated by the Trump administration’s proposal to restrict Chinese airlines from flying over Russian airspace and the removal of millions of listings for banned Chinese electronics from major US online retail platforms.
China’s actions on rare earth elements included the addition of new elements and refining technologies to its export control list, along with requirements for foreign producers to comply with its regulations. Given China’s significant role in global rare earth production, these developments have far-reaching implications for industries ranging from electric vehicles to military equipment.