1 Sino-US trade tensions spike with PRC rare earth restrictions, Trump’s 100% tariffs
PRC restricts rare earth exports, imposes retaliatory port fees, targets Qualcomm
Oct. 9
The PRC commerce ministry expanded export controls on rare earths and related technologies:
- Added five additional rare earth elements (holmium, erbium, thulium, europium, and ytterbium) to its export control list (total of 12 elements).
- All companies must get PRC permission to export products that contain more than 0.1 percent of Chinese-origin rare earths, use Chinese refining and extraction technologies, and are used for military purposes.
The measures are to take effect starting Dec. 1, 2025.
Oct. 10
1. The PRC transport ministry announced tit-for-tat port fees on U.S. ships docking in China. The fees would take effect on Oct. 14, 2025, or the same day that U.S. fees on Chinese ships docking in the United States are enforced.
2. The State Administration for Market Regulation announced an investigation into Qualcomm for suspected violation of PRC antimonopoly law.
Oct. 12
When asked about the PRC’s recent expansion of rare earth export controls, a spokesperson for the Ministry of Commerce said, “In the context of turmoil and frequent military conflicts in the world, China has taken note of the important uses of medium and heavy rare earths and related items in the military field. China, as a responsible major country, employs export controls on related items according to the law, in order to better defend world peace and regional stability, and to fulfill non-proliferation and other international obligations.”
The spokesperson added, “China’s export controls are not export bans. All applications of compliant export for civil use can get approval, so that relevant businesses have no need to worry.” The spokesperson also said, “China stands ready to work with the rest of the world to step up export control dialogue and exchange, so as to better safeguard the security and stability of global industrial and supply chains.”
The spokesperson further accused the U.S. of imposing a “double standard,” saying, “For a long time, the U.S. has been overstretching the concept of national security, abusing export control, taking discriminatory actions against China, and imposing unilateral long-arm jurisdiction measures on various products including semiconductor equipment and chips … The U.S. has long imposed the ‘de minimis’ rule for export controls, with a lowest threshold of 0 percent.”
Trump announces new tariffs
Oct. 10
1. President Donald Trump published two posts on Truth Social regarding the PRC’s expansion of rare earth export controls.
In the first post, Trump said that the PRC was becoming “very hostile” in sending letters to other countries on its rare earth controls. He added that the U.S. has been contacted by other countries who are “extremely angry” at the “great trade hostility” and expressed surprise at the PRC’s move given that the U.S.-China relationship over the past six months “has been a very good one.”
Trump continued, “I have always felt that they’ve been lying in wait, and now, as usual, I have been proven right!” He added that “now there seems to be no reason to” speak to Xi Jinping at the upcoming APEC summit in South Korea and speculated about the timing of the PRC’s actions, which came shortly after Israel and Hamas signed a ceasefire. Trump said that the U.S. was considering massively increasing tariffs and seriously considering “many other countermeasures.”
In a second post, Trump announced that the U.S. would impose a 100 percent additional tariff on China and impose new export controls on critical software products from Nov. 1, 2025. Trump also described the PRC’s rare earth move as a “plan devised by them years ago” and a “moral disgrace in dealing with other nations.”
2. When asked by reporters at the White House about his latest China tariffs, Trump appeared to suggest that he was giving Beijing an opportunity to reverse its rare earth export controls, noting that he had set the imposition date for the tariffs a few weeks later. “That’s why I made it November 1, we’ll see what happens,” Trump said.
Trump also clarified that he was not cancelling a meeting with Xi Jinping in South Korea despite implying so in his Truth Social post. “I haven’t canceled. I would assume we might have it,” Trump said.
Oct. 12
Trump posted on Truth Social, “Don’t worry about China, it will all be fine! Highly respected President Xi just had a bad moment. He doesn’t want depression for his country, and neither do I. The U.S.A. wants to help China, not hurt it!!”
Backdrop
The abrupt escalation in Sino-U.S. trade tensions followed weeks of positive signals from both sides following bilateral trade talks in Spain mid-September and progress on the TikTok deal. As late as Oct. 2, Treasury Secretary Scott Bessent was telling CNBC that he expected a “pretty big breakthrough” in the next round of trade talks with China.
Our take
1. The CCP authorities’ rare earth restrictions and other recent retaliatory measures against the U.S. have escalated Sino-U.S. trade tensions and appear to be working against Beijing’s interests. After all, the Xi Jinping leadership would prefer defusing or at least maintaining the status quo in the U.S.-China trade conflict ahead of the Fourth Plenum of the 20th Central Committee and a possible meeting with President Trump at the APEC summit in South Korea near the end of October 2025. But Beijing’s moves might not be as counterintuitive as they seem in considering how Xi and the CCP could be assessing the situation.
From the long-term, macro view, the CCP is looking to match or even win “great power” competition with the United States. At all times, the CCP would want to project the impression that it has the edge in “great power” competition and is not being bullied by Washington and the West so as to better craft propaganda to advance domestic and external agendas. Specific to rare earths, the CCP would be looking to weaponize access to hinder America’s efforts to win the “AI revolution,” develop advanced technologies, and equip the U.S. military.
That being said, Communist China has chosen an odd moment to address structural issues in geopolitical competition. Beijing is likely aware that its control over rare earth production offers short-term, limited leverage at best, and it risks incurring consequential pushback from the U.S. and other nations if it overplays the weak hand. It also does not make sense for the CCP to burn bridges with the U.S. to accomplish long term objectives when both sides appear to be on the cusp of a trade agreement and improved bilateral relations. Therefore, while structural issues are a factor, they are unlikely the driving reason behind the Xi leadership’s decision to tighten rare earth controls and roll out a string of retaliatory moves at this time.
A more plausible explanation for the CCP’s recent antagonism is Beijing’s perceived need to accumulate as much leverage as it can in the short term to extract concessions from the United States. Xi Jinping would love to secure a Trump visit to China (this would cast Xi as a great “statesman” and boost his “quan wei”), induce a change in U.S. policy that could isolate Taiwan (i.e. have Trump openly oppose “Taiwan independence”), and reach a new trade deal with the U.S. that is sufficiently favorable to the PRC. To that end, the CCP has resorted to weaponizing agriculture imports (an old trick that appeared to have some effect during Trump’s first term), detaining some Americans, engaging in tit-for-tat measures (i.e. port fees on U.S. ships docking in China), and expanding rare earth restrictions. Should the U.S. offer up enough to satisfy the PRC, Beijing could conceivably roll back some of the aforementioned measures and make much of its “victories” in propaganda. Xi Jinping would also receive a substantial “quan wei” boost if the U.S. makes adequate concessions in the lead up to the Fourth Plenum and his potential meeting with Trump in South Korea.
The CCP’s rare earth restrictions and other moves are essentially a gambit, particularly because it is far from clear how Trump will respond to them. However, the Xi leadership is likely betting that it can wrangle something out of Trump by playing hardball as it presently has several “advantages” over the United States:
i) Beijing could believe that the U.S. side is keen to manifest a “big breakthrough” in trade talks given the positive spin on them by senior Trump administration officials. Therefore, the Xi leadership could have assessed that it can get away with applying more pressure on the U.S. at this stage because the Trump administration appears to be committed to ensuring the success of trade negotiations regardless of developments.
ii) Chinese scholars believe that Trump is a “typical businessman” and a “transactional president” who can be motivated by economic and other incentives. Those views of Trump likely percolate up to the Xi leadership when those scholars are consulted on Sino-U.S. matters, and shape Beijing’s strategies and tactics for dealing with Trump to a degree.
If Beijing believes that Trump is “transactional,” they could assess that any U.S. retaliation over the rare earth restrictions and other moves are likely to be temporary and can be subsequently negotiated away if Trump is presented with the right incentives. Also, any economic damage during the interim stemming from U.S. reprisals can be mitigated by strict public discourse and societal control.
iii) Beijing could have assessed that Trump is in a politically weak position due to growing domestic turmoil (i.e. blue states resisting Trump’s immigration and other law enforcement moves, Trump’s tariffs and other policies facing judicial pushback, government shutdown, mass layoffs of federal employees, widening political divide in society, etc.) and America’s strained relations with allies over trade, the Russia-Ukraine conflict, and other issues, and is therefore currently more vulnerable to external pressure.
iv) Beijing could have assessed that the U.S. economy is facing recessionary pressures (Moody’s claims that 22 states are reportedly in recession or on the brink) and is vulnerable in the short term to supply chain disruptions. Therefore, restricting rare earths would hit a U.S. “pressure point” and make Washington more willing to make concessions.
v) Beijing could believe that while the Chinese economy is not doing well, the PRC is still capable of weathering escalated trade tensions with the U.S. for the remainder of Trump’s second term.
Xi and the CCP could believe that their “advantages” over the U.S. and the Trump administration are greater than appearances suggest given the siloed information environment that the PRC’s top leaders are immersed in. The Xi leadership almost certainly receives overly optimistic and skewed news, intelligence, and analysis from its intelligence apparatus and internal think-tanks as lower-level officials and scholars look to preserve their interests or win favor with the top leadership. For instance, lower-level officials and scholars are likely to overstate the Xi leadership’s “achievements” in dealing with the U.S. during Trump’s first term, exaggerate the PRC’s control over rare earths and the leverage it provides (partly influenced by Western media reporting on Trump administration’s rare earth “vulnerability”), and play up the “America in decline” narrative in assessing the Trump administration’s troubles. Meanwhile, Chinese scholars have advocated that the PRC should always retaliate first against U.S. sanctions — regardless of whether the move is successful or backfires — and then negotiate afterward to gain leverage in future talks. Finally, even senior trade officials engaged in talks with their American counterparts are likely to talk up the progress of negotiations when reporting to Xi, leaving Xi with a poor grasp of the current realities in the Sino-U.S. relationship and emboldening him to make controversial moves like expanding rare earth controls in pushing for a “win.”
2. At the time of writing, Beijing has barely reacted to the new Trump tariffs and is exercising tight information control domestically (the PRC “water army” [i.e. online influencers, paid commentators, and automated bots] is still claiming that Trump wants to “reconcile” with China). It is likely that the CCP authorities will carefully steer public discourse about its weaponization of rare earths and U.S. pushback while stepping up engagements with Trump administration officials in the backdrop to negotiate away the new tariffs, push towards a trade deal that the PRC finds acceptable and can hold up as an “achievement” for Xi Jinping, and secure a Xi-Trump meeting.
Whether the Xi leadership’s rare earth gambit bears fruit hinges on its flexibility on policy adjustments and how President Trump decides to handle the situation. Trump has indicated that he could walk back the new tariffs depending on the PRC’s response, is still up for meeting Xi in South Korea, and wrote that the U.S. wants to “help China, not hurt it.” And while the PRC can be quite resistant to making policy adjustments, it does make changes when backed into a corner (see the “one-child policy,” “zero-COVID,” and “houses are for living in, not speculation”). On rare earths, the CCP could conceivably give ground if Trump makes concessions or escalates tariffs by quietly and creatively tweaking its export controls (including turning a blind eye at the implementation level or applying more lenient measures toward third countries).
Xi and the CCP stand to lose big if their gambit fails. For one, U.S. implementation of an additional 100 percent tariffs on China would amount to a trade embargo and severely impact the already embattled Chinese exporters. Beijing’s move to weaponize rare earths could also pull the U.S. closer to Europe and its other allies and unite them more strongly against the PRC. Continued coverage of the CCP’s rare earth move in the Western press would remind politicians, businesses, investors, and ordinary citizens in the U.S. and the West of the CCP’s attempt to exert pressure globally by hoarding and controlling medical supplies in the early COVID-19 pandemic period. Strengthened Western unity and resolve over the rare earths issue could result in a tougher stance towards Beijing; already, the EU believes that it has to be firmer with the PRC as a way to address the Russia-Ukraine conflict and broader geopolitical concerns.
2 People’s Daily issues commentary series to boost confidence in the economy
CCP mouthpiece People’s Daily published eight “special commentaries” on the theme of “China’s economy under the guidance of Xi Jinping Economic Thought” (習近平經濟思想指引下的中國經濟專論) between Sept. 30 and Oct. 7.
The titles of the commentaries are:
- “Viewing the Leap and Transformation of China’s Economy in the New Era from a Global Perspective”
- “Deeply Understanding the Internal Logic of China’s Long-Term Stable Economic Development”
- “A Scientific and Objective View of China’s Current Economic Development Trends”
- “China’s Economic Transformation and Upgrading Contain Major Opportunities”
- “Comprehensively Grasping the Certainty of China’s High-Quality Economic Development”
- “China as a Model of Inclusive Global Development”
- “China’s Economic Development Embodies Openness and Win-Win Cooperation”
- “The More You Understand China, the More You Believe in China”
The central message of these eight commentaries can be summarized as follows:
Under the guidance of Xi Jinping Economic Thought, China — through institutional advantages, strategic resolve, innovation-driven growth, deepening reform, and open cooperation — can achieve economic transformation and high-quality development amid a complex international environment, offering the world a “China solution” and a development paradigm.
The commentaries also make the following key assertions:
- China’s economy possesses the potential of a “leap and metamorphosis” (跨越蝶變, i.e. “transformative leap”) and is, in fact, already undergoing such a transformation.
- The Chinese system and Party leadership are the fundamental guarantees for long-term stability and risk resilience.
- Transformation, upgrading, innovation, green growth, and high-quality development are the core themes of the present and future.
- Opening up and international cooperation are portrayed as proactive and mutually beneficial, not passive or zero-sum.
- Trust and recognition are the ultimate foundations for building domestic and international consensus; let understanding become the basis for trust.
Big picture
The CCP leadership will discuss the 15th Five-Year Plan at the Fourth Plenum of the 20th Central Committee in late October 2025 amid the backdrop of persistent domestic deflation, a bleak economic outlook, and rising uncertainties due to the escalating U.S.-China trade war.
Our take
The People’s Daily series of “special commentaries” on the Chinese economy is likely part of an effort by the CCP propaganda apparatus to steer public discourse and restore confidence in the economy amid bleak prospects.
However, no amount of rhetorical embellishment can conceal the fact that China’s economy is stuck with the triple crisis of worsening deflation, collapsing consumer confidence, and deteriorating debt conditions.
1. The People’s Daily commentaries resort to rhetoric to craft the narrative that “the Chinese economy in the new era is on a path to success” and sell the idea that “confidence is more valuable than gold.” For instance:
- China is “calm amid turbulent seas.”
- The Chinese economy is “progressing steadily” with a “solid foundation” and “immense potential.”
- China is akin to a “giant ship,” an “economic aircraft carrier,” and a “stabilizing pill.”
The propaganda, however, quickly falls apart on closer scrutiny. Examples include:
- The first commentary claims that “China’s economy has steadily advanced in the turbulent seas of the global economy, achieving a historic leap and transformation.” This grandiose narrative, however, obscures declining quality of growth, diminishing capital efficiency, soaring debt, and structural stagnation in the economy.
- The second commentary claims that “the inherent logic of China’s long-term stable economic development lies in the Party’s leadership and institutional advantages.” This argument eschews nuanced analysis and explanation of China’s economic growth (or lack thereof in recent years) in favor of an appeal to political loyalty.
- The third commentary acknowledges “divergence” and “risks” in the Chinese economy, but emphasizes that the overall trend is “positive.” It lists four areas of stability — growth, employment, prices, and balance of payments — and uses the metaphor of an “ocean” to describe the resilience of the Chinese economy. It admits to issues in real estate and fiscal contradictions, but claims “risks are being resolved, and people’s livelihoods are secured.” The commentary also states: “We cannot deny the overall economic situation just because some business entities are struggling, nor can we see only the trees and miss the forest.” The commentary’s positive description, however, does not stack with reality. Per the CCP’s own figures, China’s CPI fell by 0.1 percent in the first eight months of 2025, the real estate sector experienced severe declines, and employment pressures remain high. Meanwhile, the commentary’s claim of “price stability” is a euphemism for deflation.
- The fifth commentary claims that Beijing will “address various uncertainties with the certainty of high-quality development.” This is a non-argument: China’s “high-quality development” is far from certain in current economic conditions, and the mere belief in “certainty” does not eliminate the problems posed by “uncertainties.”
- The eighth commentary claims that “as long as one deeply understands China, one will firmly believe in China.” Here, economic discussion is reframed as an issue of trust: critics are dismissed as those who “don’t understand China,” and the logic of “understanding equals believing” is used to block empirical questioning of data, institutions, and governance.
2. Collapsing consumer confidence in China can be seen in the consumption data from the PRC’s “Golden Week” holiday.
According to estimates from the PRC Ministry of Culture and Tourism’s data center:
- Nationwide trips increased 16 percent year-on-year to reach 888 million during the eight-day holiday.
- Total spending increased 15 percent year-on-year to reach 809 billion yuan. But per capita spending was only 911 yuan, lower than 916 yuan during the same period last year.
- The average daily spending per person during the “Golden Week” was 113.88 yuan, down 13 percent from 130.87 yuan in 2024.
China’s “Golden Week” travel was estimated to hit a record high (more than 2.4 billion trips). However, the decline in per capita spending indicates that consumers are still not spending despite traveling, which in turn reflects stagnant household incomes, an unstable employment situation, and a collapse of consumer confidence. This phenomenon aligns closely with the continued contraction in CPI and PPI seen throughout 2025.
Other markers of deflation include:
- Nominal consumption activity appears lively, but real purchasing power declines.
- Foot traffic increases, but per transaction spending decreases.
- Headline economic data looks healthy, but actual business revenues are shrinking.
3. In the official narrative, Beijing claims that China’s economy is “resilient and full of potential.” But the CCP’s own data tells a different story — almost all new credit growth in 2025 has come from government borrowing. Meanwhile, the People’s Bank of China has been resorting to technical maneuvers — “outright reverse repo” operations (買斷式逆回購) to “print money to buy bonds” (印鈔買債) and inject cash into the financial system — to mask fiscal imbalances and create a facade of prosperity.
The PRC’s average monthly bond issuance reached a record high 2.26 trillion yuan in the first eight months of 2025. Of the total, 1.2966 trillion yuan of national government bonds were issued per month (up 25.9 percent year-on-year) and 960.2 billion yuan of local government bonds were issued a month (up 17.9 percent year-on-year).
Despite massive government borrowing, Chinese markets have remained oddly calm and the Shanghai Composite Index even rebounded to around 3,900 points. By contrast, China suffered a bond market liquidity crisis in the second half of 2024 when heavy debt issuance drained funding and triggered a market crash.
The appearance of market stability in 2025 is due to the PBoC engaging in technical “support” through outright reverse repo operations. In this arrangement, commercial banks purchase government and local bonds from the finance ministry and local governments, then immediately sell them to the central bank under the guise of a “repo” (repurchasing at an agreed price after three or six months). Nominally a short-term liquidity adjustment, it is effectively the central bank directly printing money to buy bonds, but keeping the assets off its balance sheet.
By the end of October 2025, the PBoC’s holdings of treasury bonds through outright reverse repos will reach 5.3 trillion yuan; combined with on-balance-sheet holdings of 2.25 trillion yuan, the total will amount to 7.55 trillion yuan. In comparison, at the end of 2024, the central bank held only 2.88 trillion yuan in treasury bonds on its balance sheet. This means the central bank is engaging in covert quantitative easing using “technical” language to disguise direct debt monetization (i.e. “outright reverse repo”) to provide a lifeline to the CCP authorities.
The central bank’s “left-hand to right-hand” operations have, in the short term, indeed suppressed bond yields and maintained superficial stability in the stock market and exchange rates. However, in the long term, this is a highly destructive financial illusion that poses greater financial risks, including unchecked debt expansion; opaque monetary growth; distorted market price signals; and capital flowing from the real economy to speculative activities.
Meanwhile, under the expectation of the central bank’s “unlimited backstop,” financial institutions have begun arbitrage activities (so-called “shearing the central bank’s wool”). Financial institutions first “collectively go long on treasury bonds” to force the central bank to cut rates. Those institutions then dump bonds and speculate in equities, selling their holdings to the central bank and reinvesting in the stock market for profit. The result is an irrational divergence between the bond and stock markets, with the central bank passively becoming the “buyer of last resort,” rendering monetary policy ineffective and forming a self-reinforcing financial mirage.
The CCP authorities’ artificial creation of “false liquidity” and “false prosperity” is akin to “drinking poison to quench thirst.” By “maintaining stability through money printing,” China’s economy is being pushed toward an institutional precipice of unresolved local debts, collapsed fiscal discipline, and eroded monetary trust.
