In a move that has significantly heightened tensions in global diplomacy and trade, China’s decision to tighten export restrictions on rare earth elements has sent ripples through international markets, deepened strategic rivalry with the United States, and set the stage for a pivotal geopolitical showdown. Just weeks before a high-stakes meeting between President Xi Jinping and U.S. President Donald Trump at the Asia-Pacific Economic Cooperation (APEC) summit in Seoul, Beijing broadened its export controls to include five additional rare earth elements: holmium, erbium, thulium, europium, and ytterbium, bringing the total to 12 out of the 17 recognized rare earths now subject to licensing.
Announced on October 9 by China’s Ministry of Commerce, the new rules take effect on December 1 and require licenses for exports and even products that contain as little as 0.1% of these materials, or that rely on Chinese refining methods. Officials cited national security risks and alleged that foreign countries were diverting Chinese-sourced materials into military applications. The move is Beijing’s direct response to growing Western efforts to de-risk supply chains from overreliance on China.
Rare earths are critical inputs in a range of technologies from smartphones and electric vehicles to fighter jets like the F-35 and advanced missile systems. With China dominating global production (over 70%) and refining capacity (nearly 90%), these tighter controls sent alarm bells ringing in Washington, where policymakers and industry leaders have long viewed China’s mineral dominance as a strategic vulnerability.
Markets reacted sharply, with American rare-earth producers seeing an immediate uptick. USA Rare Earth rose 15%, while NioCorp, Ramaco Resources, and MP Materials also posted gains amid expectations of a government-backed push to boost domestic production. Energy Fuels and lithium firms like Albemarle and Lithium Americas also benefited from the intensified focus on diversifying America’s critical mineral supply chains.
Perhaps most notably, Critical Metals, whose Tanbreez project in Greenland hosts the Arctic’s largest known rare-earth deposit, saw shares soar 62% following a Reuters report that U.S. authorities are considering acquiring an 8% strategic stake in the firm. Such a move would strengthen Washington’s bid to break away from Chinese mineral hegemony and bolster U.S. production capacity under the Defense Production Act.
The developments come amid a broader pivot in U.S. economic strategy. Echoing Cold War-era industrial playbooks, the Trump administration has used the Defense Production Act to directly invest in domestic players essential to national security and technological resilience. A government investment of up to $50 million in Critical Metals is under consideration to secure key supply lines before China can tighten the noose further.“This should be a wake-up call,” said Barbara Humpton, USA Rare Earth’s CEO. “The U.S. needs a trusted and collaborative ecosystem that’s independent of China, not only to serve economic goals, but to protect national defense capacities.
President Trump’s response was immediate and fiery. Lashing out on Truth Social, he labeled China’s move “sinister and hostile” and hinted at canceling his meeting with President Xi, threatening new retaliatory tariffs possibly up to 100% on Chinese imports as soon as November 1. He accused Beijing of weaponizing its rare-earth leverage in “economic warfare.”
Markets initially recoiled. The S&P 500 shed about 2%, tech and semiconductor stocks bore the brunt, AMD fell 7%, Nvidia dropped nearly 2%, and the sector as a whole slipped 2.5%. Trump's statements on Friday plunged markets into uncertainty.
But in a sharp reversal just two days later, Trump adopted a softer tone, boosting investor confidence. On Sunday, he wrote: “Don’t worry about China… It will all be fine,” and suggested that Xi “doesn’t want depression for his country, and neither do I." The conciliatory shift sparked a Wall Street rebound. On Monday, the S&P 500 surged 1.6%, reclaiming more than half of Friday’s losses. The Dow Jones climbed 598 points (1.3%), and the Nasdaq Composite jumped 2.1%. A strong statement of optimism from Trump, paired with hopes for resumed cooperation, helped calm investor nerves.
One standout was Broadcom, which leaped nearly 10% after announcing it would collaborate with OpenAI on new custom AI accelerators. The tech sector, already booming from AI-related optimism, gained new forward momentum. However, analysts caution that markets remain vulnerable. Morgan Stanley warned that volatility may persist until investor confidence is bolstered by either earnings outperformance or a clear geopolitical resolution. “The U.S. stock market may have been looking for a catalyst for correction,” said Michael Wilson of Morgan Stanley, pointing out that markets have risen faster than corporate earnings justified.
Outside the U.S., reactions were mixed. Asian markets fell on Monday following U.S. tariff threats, with Hong Kong down 1.5% and Shanghai dipping 0.2%. Yet, China reported global export growth of 8.3% in September, its strongest in six months, highlighting its success in shifting trade flows away from the U.S. toward other global partners. While Beijing insists it does not want a tariff war, it has made it clear it won’t shy away from conflict either. China’s Commerce Ministry urged Washington to resolve disputes “through negotiation, not provocation.”
As both countries dig in for what increasingly looks like a long-term strategic confrontation, rare earths have emerged as a central theater of economic statecraft. Xi’s timing suggests a bid to gain negotiating leverage ahead of the APEC summit. Yet some analysts say Beijing may have overplayed its hand.
“If the objective was to intimidate Washington or fracture Western unity, it’s backfired,” said Gracelin Baskaran from the Center for Strategic and International Studies. “It has instead galvanized U.S. investment in domestic mining and forced a wider recognition of Chinese dependency risk.”
Lawmakers like Rep. John Moolenaar of the House Select Committee on China went further: “This is an economic declaration of war,” he said, calling for an end to China’s trade privileges and immediate U.S. legislative action to secure critical mineral independence.
Heading into the APEC summit, all eyes will be on whether the Trump-Xi talks proceed or collapse under the weight of rising nationalism and resource nationalism. What’s no longer in debate is the role rare earths now play in shaping not only global markets but the balance of power.
This emerging battleground is no longer just about tariffs and tech. It’s about mines, magnets, and metal-based leverage that will define the next era of industrial policy and the winner of the 21st-century race for economic and strategic supremacy.