Beijing’s trying to force US to drop its own restrictions on selling advanced computer chips to China, analysts say

China has expanded export restrictions on rare earths to strengthen its bargaining power with the US. Photo / Getty Images

China is wielding its most potent tool of economic coercion – its overwhelming dominance of the rare earths needed to make everything from laptops to jet engines – in an attempt to extract trade concessions from the United States and ensure the world remains dependent on China for critical raw materials.

Beijing’s dramatic expansion of export restrictions on rare earths last week – a fortnight before US President Donald Trump and Chinese leader Xi Jinping are expected to meet – took the White House by surprise. It came, Trump said, “out of the blue”.

But the move was the culmination of a multi-year effort by China to boost its bargaining power by replicating US restrictions on computer chips and other cutting-edge technologies.

Those are measures that Beijing sees as constraining its technological advancement and is lobbying for the Trump Administration to remove.

Rare earths are Beijing’s “trump card”, said Laila Khawaja, an analyst at Gavekal, a research firm based in Hong Kong. Nothing else can make the US blink, she said.

That’s because China accounts for 70% of the world’s rare-earth mining and about 90% of the processing of these 17 chemically unique metals.

Beijing this year has significantly expanded its restrictions in response to Trump’s tariffs, culminating in last week’s rules that weaponise its control of global supply.

From November 8, 12 out of 17 rare earths will be subject to export controls, and Beijing will also impose restrictions on lithium batteries used in electric cars and superhard materials used to make mining drills.

Licences are also now required for Chinese companies to sell rare-earth mining and separation machinery abroad.

Perhaps the most significant expansion of Chinese controls, however, is a global licensing requirement set to take effect on December 1.

Under the new rules, companies anywhere in the world must apply for Beijing’s approval to export rare-earth magnets or semiconductor materials that contain even 0.1% controlled metals originating in China.

These sweeping restrictions may be a sign that Beijing wants a broad rollback of the US’ own export controls – rather than simply an easing of tariffs.

Since Trump’s first term, the US has worked closely with foreign partners to progressively limit China’s access to American-developed advanced semiconductors and the equipment and know-how needed to manufacture them.

China’s latest controls were “calibrated to negotiate for reciprocal relaxation of US chip controls”, one of its top demands in trade negotiations, Khawaja said.

The US-China trade conflict goes beyond export controls on technology and raw materials – both countries began charging additional port fees for each other’s ships on yesterday – but these restrictions have become increasingly central in negotiations to lower tariffs.

China’s latest announcement set off a round of escalation and brinkmanship after a fragile ceasefire in the trade war was achieved through three rounds of negotiations over the summer.

Now, the leaders of the world’s two biggest economies appear to be trying to de-escalate.

Trump threatened on Saturday to cancel the meeting with Xi and impose additional 100% tariffs on Chinese goods on November 1, but he appeared to soften his tone on Monday, brushing off the measures as Xi having a “bad moment”.

US Treasury Secretary Scott Bessent told Fox Business on Tuesday that tensions had “substantially de-escalated” and that Trump was still expected to meet Xi at the Asia-Pacific Economic Co-operation summit in South Korea this month.

China’s Commerce Ministry yesterday highlighted the “vast room for co-operation” with the US and said that the two countries are “capable of finding ways to resolve problems”.

Beijing has shown no sign of reversing course on its rare-earth controls.

Instead, it has downplayed the impact of its policies and defended them as a legitimate attempt to prevent products with military applications from falling into the wrong hands.

That decision may be partly political. By naming Xi personally and suggesting he made a mistake, Trump probably made it “harder for [China] to pull back, if they even wanted to”, wrote Bill Bishop, an expert on Chinese politics and author of the Sinocism newsletter.

It is also part of Beijing’s increasingly pointed negotiation tactics. After decades spent building up dominance over the global production of rare earths, China is now trying to use its control to maximal effect.

For years, Xi has called for China to use its domination in strategically important industries as an “assassin’s mace” – a weapon that can be used in a dispute to prevent the other side from gaining the upper hand, said Jacob Gunter, an analyst at the Mercator Institute for China Studies, a China-focused think-tank based in Berlin.

After systematically tightening its hold on rare earths, Beijing appears to be going for shock and awe.

“There’s no way to read this other than a declaration of Beijing’s intent to control all flows of modern technology,” Gunter said of the expansion of restrictions announced last week.

Even though the US is still years away from challenging China’s lead in rare earths, Beijing can see that Washington is getting serious about building alternative supply chains and it wants to find ways to maintain its dominance, analysts said.

China has brushed off Western criticism of its controls as “double standards”, in part because it built its system by replicating – almost policy for policy – the US regime of export controls to block adversaries from accessing its most advanced technologies.

Beijing also carefully studied the many loopholes of US export controls and is now trying to close them.

According to Chinese analysts, rules that require companies anywhere in the world to obtain licences to export products containing even the tiniest fraction of Chinese-produced rare earths were designed to stamp out any way around Beijing’s existing controls.

“The key goal is to plug loopholes,” said a researcher at a state-backed think-tank, speaking on the condition of anonymity because he was not authorised to speak with foreign media.

“The new round of rare-earth control measures is not a temporary move, but an important step to build a long-term protective framework for China’s rare-earth industry,” he said.

China’s threat to cut off the basic inputs used in everything from iPhones to medical devices to artificial intelligence data centres makes the controls – if implemented strictly and broadly – potentially far more disruptive to global supply chains.

It also makes them harder to defend as countries wake up to the dangers of dependence on Chinese supply, analysts said.

Beijing’s new rules are in part designed to prevent other countries such as Malaysia, Myanmar or Kazakhstan from working with the US to create rare-earth supply chains that bypass China, analysts said.

Nationalist Chinese commentators have recently lashed out at Pakistan, a close partner of Beijing, for processing rare earths on behalf of Missouri-based US Strategic Metals “using Chinese-made equipment”.

While the Foreign Affairs Ministry in Beijing dismissed those concerns as “misinformed”, Chinese analysts have celebrated the new rules as an important step in defending China’s lead.

The regulations will help China “deepen the moat” by restricting exports of mining and smelting technologies that will make it “significantly harder and costlier to build an independently controlled supply chain overseas,” CITIC Securities, a Chinese investment bank based in Shenzhen, said. .

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