Can the Downward Spiral in US/China Trade be Stopped?

The United States and China are locked in another round of economic confrontation, with actions on both sides intensifying a dispute that has simmered for years. On October 10, President Donald Trump announced plans for an additional 100 percent tariff on Chinese imports, set to begin November 1, along with new export controls on critical software. This would push tariffs on some goods to 130 percent, ending a fragile truce reached in August.

In retaliation, Beijing expanded its rare earth export controls on October 9, requiring licenses for materials vital to semiconductors, electric vehicles, and defense systems, effective December 1. China also launched an antitrust investigation into Qualcomm and, starting October 14, imposed new port fees on U.S.-linked vessels, mirroring American charges on Chinese ships that began the same day. These shipping fees threaten to disrupt global trade routes, raising costs for everything from consumer goods to oil shipments. Markets reacted sharply: oil prices fell more than 2 percent on October 14 amid fears of prolonged tensions, while rare earth mining stocks in the United States surged as investors anticipated supply shortages. The rhetoric has sharpened, with China’s commerce ministry declaring on October 14 that it will “fight to the end” against what it calls U.S. intimidation. Yet, beneath the surface, the core dynamics of this rivalry remain familiar and unchanged.

Despite the dramatic headlines, the long-term path of Sino-American relations has not shifted in any fundamental way. The two nations continue along a dual track of competitive confrontation and gradual reduction of mutual dependence in sensitive areas, such as technology, critical minerals, and supply chains. This is not a full reprise of the Cold War, with its ideological battles and proxy conflicts, but a strategic rivalry intertwined with deep economic links. Trade between the two reached hundreds of billions last year, even as decoupling efforts accelerated. Minor clashes like the current one are likely to recur, and the prospects for a broad, lasting agreement are limited. Past efforts, including the Phase One deal from Trump’s first term, provided short-term pauses but left unresolved grievances over intellectual property, subsidies, and market barriers. Today, with both sides dug in, economic measures increasingly serve broader geopolitical goals, from securing tech dominance to bolstering national security.

What unfolds now is a tactical escalation rather than a complete break. The Asia-Pacific Economic Cooperation summit in Seoul, scheduled for late October, could serve as a platform for dialogue between Trump and Xi Jinping—their first in-person meeting since 2019. Signals from both capitals suggest the door remains open. Over the weekend before October 14, China’s Ministry of Commerce issued a measured statement, clarifying that rare earth controls are not outright bans and that compliant exports will proceed. Beijing also noted it had informed the United States in advance, countering American claims of surprise.

U.S. officials, including Vice President J.D. Vance, have affirmed that preparations for the summit continue, portraying Trump as a pragmatic negotiator who values his relationship with Xi. Tariffs and rare earth licensing timelines remain fixed, creating a narrow window for talks to prevent further damage. If mishandled, this could devolve into an extended cycle of retaliation, but history suggests these flare-ups often precede concessions.

China’s choice to tighten rare earth controls at this juncture is deliberate, rooted in two key assessments. First, Beijing has made substantial progress in its domestic semiconductor and AI ecosystem over the past two years. A viable, self-reliant supply chain is forming, though it lags U.S. leaders like Nvidia in cost and efficiency. This diminished reliance on American chips bolsters China’s ability to withstand export bans, allowing it to speed up domestic alternatives if restrictions tighten.

Second, rare earths represent a potent strategic tool. These minerals are indispensable for high-end manufacturing, including robotics, autonomous vehicles, and military hardware. By imposing controls, China signals to the United States and its partners that containment strategies will incur real costs, potentially weakening alliances like the G7, which has discussed countermeasures such as price floors on Chinese rare earths. The port fees add another layer, targeting shipping as a new front in the dispute and highlighting China’s leverage in global logistics.

The United States holds significant advantages of its own. Its control over foundational software, chip design, and financial systems provides powerful pressure points. Discussions of sanctions on nations supporting the UN’s maritime emissions plan, which China backs, underscore how Washington can blend trade with environmental policy. However, the administration’s aggressive stance—blanket tariffs and broad export threats—carries risks. It could solidify Chinese resistance rather than force yields, while unsettling global markets already on edge. Oil prices dipped on October 14 due to trade fears, and supply chains are preparing for interruptions. Businesses, from exporters to manufacturers, are demanding stability, as higher costs filter down to consumers. The antitrust probe into Qualcomm illustrates how China can target specific U.S. firms, complicating the landscape further.

A scenario where this buildup leads to negotiation seems credible. Both parties appear to be positioning for advantage ahead of APEC, with threats paving the way for dialogue. If successful, it might yield a limited accord, such as tariff delays or eased rare earth access, deferring the next clash. But this pattern is unsustainable over time. It undermines confidence, warps markets, and erodes the multilateral trading order embodied by institutions like the World Trade Organization.

To break the cycle, a more organized approach to handling competition is essential. This does not mean settling every disagreement or ending the rivalry. Instead, it calls for safeguards to keep escalations in check. Confidence-building steps, like greater transparency in export rules and ongoing senior-level discussions, would help. Sectoral pacts on rare earths, where interdependence lingers, could stabilize supplies. Subcabinet working groups on licensing and software might resolve issues quietly, avoiding public standoffs.

The United States should prioritize its own strength. This involves expanding domestic production of key technologies, diversifying sources—such as boosting California’s rare earth mine or collaborating with Australia and Canada—and investing in innovations like rare-earth-free magnets. At the same time, Washington needs to temper excess. Sweeping prohibitions and high tariffs may appeal domestically, but they often rebound, harming the economy and diplomacy. Surgical measures, targeting military uses while sparing civilian ones, would minimize fallout.

China, too, bears responsibility. Coercive steps like rare earth restrictions or port fees can push away partners and hasten decoupling. To position itself as a reliable global player, Beijing should align its interests with equitable trade practices. Short-term advantages from these tactics may invite lasting backlash, including allied efforts to develop alternatives.

In essence, the U.S.-China trade war is a persistent challenge to navigate, not a puzzle to solve. The aim should be to direct competition into stable, foreseeable channels governed by rules. The APEC summit might not produce a major advance, but even a temporary halt—perhaps a moratorium on new fees or controls—would count as headway. As October 14’s developments show, both nations have cards to play, but mutual harm benefits neither. Leaders must opt for restraint over rupture, recognizing that in a linked world, managed rivalry outperforms isolation.

This first appeared on FPIF.

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