Financial markets were thrown into turmoil on October 10, 2025, after President Donald Trump announced a sweeping new round of tariffs against China and threatened to cancel a long-anticipated summit with Chinese President Xi Jinping. The move came as a direct response to Beijing’s latest restrictions on rare earth exports—a sector where China holds a commanding global position. As tit-for-tat measures escalated, investors, diplomats, and analysts scrambled to assess the fallout, raising urgent questions about the future of U.S.-China relations and the stability of global markets.
According to Reuters and South China Morning Post, President Trump’s decision to impose an additional 100% tariff on Chinese goods and limit U.S. software exports was triggered by China’s announcement that, starting December 1, 2025, foreign companies would need a license to export any product containing more than 0.1% rare earths from China or made using Chinese production technology. The timing was not coincidental. Just a day earlier, China had unveiled these new export controls, tightening its grip on a sector critical to the production of everything from smartphones to advanced military hardware.
China’s dominance in rare earths is well documented. The country produces more than 90% of the world’s processed rare earths and rare earth magnets, making it a critical supplier for U.S. manufacturers and technology companies. As Michael Froman, president of the Council on Foreign Relations and a former U.S. Trade Representative, put it in a recent post, “The United States can cut China off from the chips of today, but China can make it vastly harder to build the chips and other advanced technologies of tomorrow.” The leverage is real—and Washington knows it.
The financial fallout was swift and severe. The S&P 500 index plummeted 2.7% on October 10, marking its worst selloff since April 10 of the same year. The U.S. dollar index dropped nearly 0.7% as Treasury yields fell—an unusual move, given that investors typically flock to the dollar in times of uncertainty. Instead, gold prices surged more than 1.5%, signaling a flight to alternative safe havens amid the escalating trade war. “Markets are again thinking that the US holds the shorter straw in the tariff fight with China,” Robin Brooks, a senior fellow at the Brookings Institution, wrote on Substack. Brooks noted that the dollar’s vulnerability was particularly striking given the steep drop in stocks, remarking, “The fact that this didn’t happen and that gold prices rose more than on ‘Liberation Day’ is concerning. The Dollar is not looking healthy.”
For many observers, the events of October 10 felt like déjà vu. Back in April, the so-called “Liberation Day” tariffs had already sent shockwaves through global financial markets, demonstrating just how quickly economic hostilities between the world’s two largest economies could spiral out of control. This time, however, the stakes felt even higher. The divergence between the dollar and gold, traditionally seen as safe havens, underscored just how unsettled investors had become.
The roots of this latest skirmish run deep. Earlier in 2025, the United States had moved to restrict other countries’ exports of semiconductor-related products to China, aiming to stymie Beijing’s ambitions in advanced technology. Washington also expanded export controls designed to prevent advanced technology and other dual-use goods from reaching China, further fueling tensions. In a parallel move, the U.S. imposed new port fees on Chinese ships, prompting Beijing to respond in kind with similar fees on U.S. ships docking at Chinese ports. Not to be outdone, China launched an antitrust investigation into U.S. chipmaker Qualcomm, signaling that it was prepared to use every tool at its disposal in the ongoing trade war.
The rare earths issue, in particular, has become a flashpoint. Trump had previously boasted of resolving the rare earth problem in negotiations with China, but Beijing’s latest export curbs appeared to catch him off guard. “Trump was furious and embarrassed as he had previously boasted of resolving the rare earth issue in negotiations with China,” He Weiwen, a former U.S.-based diplomat and senior fellow at the Centre for China and Globalisation, told the South China Morning Post. The fact that Trump was once again threatening to raise tariffs, He added, suggested that the U.S. president had few other tools left to pressure Beijing.
The diplomatic consequences were immediate. On October 10, President Trump threatened to call off a planned summit with Xi Jinping, a meeting that many had hoped would cool tensions and pave the way for a more stable economic relationship. Instead, the two sides now appear locked in an escalating cycle of retaliation, with each new measure prompting an equally forceful response from the other. The prospect of meaningful dialogue seems to be slipping further out of reach.
For U.S. businesses and consumers, the implications are sobering. The new tariffs and export restrictions threaten to drive up costs for manufacturers and disrupt supply chains that rely on Chinese rare earths and technology. The port fees, set to take effect later in October, will add yet another layer of expense and uncertainty for companies moving goods between the two countries. As the world watches, the risk of broader economic fallout is growing by the day.
Yet, for all the drama, some analysts argue that the U.S. may be running out of options. With China holding such a dominant position in rare earths and other critical supply chains, Washington’s ability to inflict real pain on Beijing appears limited. “This is now the second instance where markets are trading tariffs as backfiring on the US, not on the rest of the world,” Brooks observed. The message from the markets was clear: investors are increasingly skeptical that aggressive tariff measures will yield the desired results for the U.S. economy.
Meanwhile, Beijing’s willingness to weaponize its rare earth dominance signals a new phase in the trade war—one where critical resources, rather than just finished goods, become the battleground. The requirement for export licenses on products containing even trace amounts of rare earths could create significant headaches for multinational companies, forcing them to rethink supply chains and scramble for alternative sources.
Looking ahead, the path to de-escalation appears fraught with obstacles. Both sides have dug in, with neither willing to concede ground on issues they view as central to their national interests. For now, the world’s two largest economies remain locked in a high-stakes standoff, with global markets and the broader international community caught squarely in the crossfire.
As the dust settles from the latest round of tit-for-tat measures, one thing is clear: the U.S.-China trade conflict has entered a new and unpredictable chapter, with no easy resolution in sight.
