Despite being more vulnerable to trade war pain due to its export surplus, China has adroitly managed to gain the upper hand in the economic conflict by taking advantage of the fact that semiconductors require input factors that are almost entirely under Chinese control.
Despite the show of progress and professed optimism for a potential de-escalation in the Madrid trade talks, the US wasted no time to launch a series of trade and tech sanctions against China immediately afterwards, just like it launched the sneak attack on Iran shortly after its 5th round nuclear talks with Tehran.
- The US Bureau of Industry and Security (BIS) tightened its chip ban on China, expanding the embargo to cover all semiconductor related software and equipment sales to China, in an effort to completely choke off China’s ability for chip production
- Washington expanded its entity list (i.e. black list) to deny high end sales to businesses outside of China that have 50% or more Chinese ownership
- It announced a plan to charge million-dollar port fees for any Chinese-operated shipping companies, Chinese-made ships, or non-Chinese shippers with Chinese-made ships in their fleet or on their order books, in an effort to undermine China’s shipping building industry
- Washington also put a 721% tariff on Chinese clean energy products such as solar panels
- It imposed 50% tariff on semi-finished copper products and copper-intensive goods (e.g., wiring, batteries) under Section 232, targeting China’s dominance in EV/tech supply chains
- It ended de minimis exemption for low-value packages, hitting e-commerce from Chinese platforms such as Temu and Shein
Faced with the bad faith from the Trump regime, China retaliated swiftly with a suite of counter actions:
- Beijing published its latest restrictions on rare earth products to deny any sales of China-sourced rare earth magnets, processing technology, and equipment to foreign military and semi-conductor industry
- It revoked import license for US lumber and soybeans. China was the biggest buyer of US soybeans in the past and accounted for over 50% its export. But it has ordered no purchase in 2025
- Beijing announced it would charge reciprocal port fees for any US-operated or US-owned shipping companies. China runs 7 out of the world’s top ten container ports and has by far the highest port calls. Though the US builds few ships and few large shipping companies are US operated, US pension funds and asset managers own large shares in some of the world’s top shipping companies like Maersk which are now subject to the port fees. This move directly targets US financial interests
- China also tightened up export of lithium ion and graphite anode, critical for green transformation
- It expanded the unreliable list (China’s answer to the entity list) to cover more US defense contractors, tech firms, and critical mineral companies. It also launched anti-trust investigation against Qualcomm, a large US chip manufacturer
The latest tit for tats strongly indicates China is ready to move up the escalation ladder in its confrontation with the US on trade and technology issues.
In particular, Beijing’s enhanced rare earth restrictions are expected to deal a massive blow to high tech and military production in the US and its vassals.
In its embargo of chip technology against China, the US utilized the Foreign Direct Product Rule (FDPR) to block chip export to China if non-US made chips use any American technology, software, or equipment somewhere along the supply chain.
In essence, the FDPR allows US to claim jurisdiction to any products US technology touches even if it is made overseas such as the case with TSMC and ASML. The rule gives the US extraterritorial reach.
With the new rare earth restrictions, China flips the logic back to the US. Beijing has announced any non-Chinese companies operating anywhere must obtain Beijing’s approval to export rare earth magnets or semiconductors if those products contain Chinese original rare earth, or if they are produced using Chinese rare earth technology, process or equipment.
Beijing is denying all rare earth products, technology, equipment, and technical support to foreign end users it doesn’t approve.
The Chinese economic strategists understand that in an economic war, pain flows downstream. The US thought it was in the driver’s seat – and indeed, I assumed much the same due to the fact that the US economy would benefit greatly from refraining from importing goods from China and onshoring its now-absent industrial manufacturing capabilities.
But the stranglehold China has upon the materials required for modern warmaking materials, particularly drones and semiconductors, means that the USA will have to choose between its ability to make war and its ability to maintain the global Clown World economy. And for the first time, it is not possible for Uncle Sam to choose guns and butter.