China’s withholding of critical rare-earth minerals threatens to collapse the recent U.S.-China trade truce and could cripple American manufacturing in key sectors like defense and electric vehicles.

At a Glance

• China has delayed approving export licenses for rare-earth minerals critical to U.S. manufacturing despite a May trade agreement
• President Trump has accused China of “TOTALLY VIOLATING” the trade agreement
• American automakers fear production shutdowns similar to pandemic disruptions
• Treasury Secretary Scott Bessent suggests direct talks between President Trump and President Xi are needed
• Both nations have escalated retaliatory measures including tech export controls and visa restrictions

Trade Agreement Collapsing Over Rare Earth Exports

The fragile trade relationship between the United States and China faces a new crisis as China restricts exports of rare-earth minerals essential for American manufacturing. These minerals are crucial for semiconductors, electric vehicles, and defense equipment. The issue has become central to a temporary tariff truce reached in Geneva on May 12, which rolled back recent tariff increases for 90 days until mid-August. However, the agreement is unraveling as China slows approval of export licenses for these critical materials.

President Trump has publicly denounced China’s actions in characteristically direct terms. “China, perhaps not surprisingly to some, HAS TOTALLY VIOLATED ITS AGREEMENT WITH US,” Trump stated, highlighting growing frustration within his administration over China’s apparent resistance to honoring the trade deal commitments.

AMERICA HAS GIVEN CHINA A STRANGELY GOOD TARIFF DEAL

"If only America's top economic officials had hit upon the ingenious idea of meeting their Chinese counterparts in person before Liberation Day…"

One-sentence summary: A surprise agreement between the U.S. and China has…

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American Industries Bracing for Impact

The standoff has American manufacturers, particularly automakers, concerned about potential production disruptions reminiscent of pandemic-era supply chain failures. U.S. Trade Representative Jamieson Greer has accused China of “slow-rolling” its obligations under the trade agreement. The situation is particularly concerning because China controls approximately 85% of the global processing capacity for rare-earth minerals, giving Beijing significant leverage in trade negotiations with Washington.

Treasury Secretary Scott Bessent has suggested that direct communication between President Trump and President Xi Jinping may be the only way to resolve the impasse. “I think that given the magnitude of the talks, given the complexity, that this is going to require both leaders to weigh in with each other,” Bessent said. “They have a very good relationship and I am confident that the Chinese will come to the table when President Trump makes his preferences known.”

Escalating Retaliatory Measures

The rare-earth dispute is part of a broader deterioration in U.S.-China relations. Many analysts believe China’s actions are retaliation for the U.S. Commerce Department’s recent warnings against Huawei’s AI chip development. The Trump administration has responded by tightening controls on high-tech exports to China and investigating Chinese trade practices. Additionally, Secretary of State Marco Rubio has announced plans to “aggressively revoke” visas for Chinese students, a move China’s Foreign Ministry has condemned as “fully unjustified.”

“With both sides wanting to retain and continue demonstrating the potency of their respective chokehold capabilities, the risk that the ceasefire could unravel even within the 90-day pause is omnipresent.”

The U.S. has also restricted sales of advanced chip software to Chinese companies, potentially impacting China’s aerospace projects, including the C919 aircraft program. China has described American actions as an “abuse of export control measures.” These escalating retaliatory measures from both sides threaten to completely unravel the May trade agreement well before its expiration in August, potentially leading to renewed tariff increases and further economic disruption for American consumers and businesses.