Beijing just tightened rare-earth export controls while Washington floats a 100% tariff on all Chinese imports starting Nov. 1. The speculative position in Beijing? Trump’s sensitivity to equity drawdowns will force a softer line by the APEC summit. We unpack the evidence, the April ‘145% to 30%’ episode, and the scenarios ahead
Trade tensions between the U.S. and China are spiking again—only this time, the fulcrum is unusually clear. Beijing has doubled down on export controls for rare earths and magnets, industries where it dominates the processing and midstream value chain, while the White House has threatened a sweeping 100% tariff on all Chinese imports starting November 1 unless a deal materializes. Behind the headline saber-rattling lies a political economy reality that Chinese strategists have studied for years: President Trump is acutely sensitive to U.S. stock market drawdowns. That perceived “weak spot” shapes Beijing’s risk calculus heading into the APEC leaders’ summit in Gyeongju.
Beijing’s Leverage: Rare Earths and Magnets
China’s share of the rare-earths stack extends from mining to separation, processing, and magnet manufacturing. Recent analyses place China near ~70% of mining, about ~90% of separation/processing, and a commanding share—above 90%—in high-performance magnet output. In the past two weeks, Beijing tightened export licensing again, specifically targeting defense and semiconductor downstreams, adding items to an April control list, and signaling case-by-case reviews that can slow or deny shipments. In short: the chokepoints are real, and they can be dialed up or down at will.
Washington’s Counter: The 100% Tariff Threat (and Its Limits)
On the U.S. side, the administration has threatened a 100% blanket tariff on Chinese imports effective Nov. 1 if the rare-earth restrictions aren’t relaxed. Even as he issued the warning, Trump himself acknowledged the measure would be “not sustainable,” an admission that markets read as both a bargaining cudgel and a sign of eventual compromise. Treasury Secretary Scott Bessent is slated to meet Chinese Vice Premier He Lifeng ahead of APEC to try to defuse the escalation, underscoring that both sides know a full follow-through would be economically costly.
The “Stock Market Weakness” Hypothesis
Why would Beijing expect a U.S. climb-down? The pattern since April: aggressive tariff signaling → broad equity selloff → partial policy moderation → rally. Trump’s public posture and subsequent communications have repeatedly linked tariff intensity to market performance—often softening language or sequencing measures after bouts of volatility. That perceived feedback loop is now part of the Chinese playbook.
What Happened in April: From 145% Talk to a 30% Plateau
In early April, the White House unveiled a sweeping tariff architecture (“Liberation Day” tariffs), pairing a baseline levy with steeper, country-specific rates. Markets recoiled. Within days, the administration announced a 90-day pause on most new measures even as China-specific rates ratcheted up—an awkward compromise that still calmed Wall Street. Later in August, Washington and Beijing extended a tariff truce, preventing duties from surging to the mooted 145% and effectively locking U.S. tariffs near 30% pending further talks. That evolution—from triple-digit rhetoric to a negotiated plateau—reinforced the view that equity stress can shape the tariff dial.
Why Rare-Earth Controls Hit Different
Tariffs tax imports; rare-earth controls interrupt inputs. By targeting separation, magnets and specific elements, Beijing affects defense, autos (EV motors), renewables, and advanced electronics simultaneously. Even without a full cutoff, incremental licensing friction can widen delivery times, push up costs, and spook procurement desks—mechanisms that can bleed into equity multiples long before hard shortages occur. That is precisely why the timing of China’s latest curbs—just ahead of the APEC window—is viewed as strategic leverage, not symbolic signaling.
APEC as an Escalation-or-Off-Ramp Moment
Leaders converge in Gyeongju, South Korea, on Oct. 31–Nov. 1, with a Trump–Xi meeting penciled in. The immediate question is whether both sides can stage a “mini-deal”: China relaxes specific export curbs (or clarifies licensing), the U.S. shelves the across-the-board 100% tariff threat, and both teams claim a win while talks continue. The choreography matters as much as substance: markets will treat any signal of de-escalation as relief and any hint of new red lines as fuel for volatility.
Scenarios: How This Likely Plays Out
1. Managed De-escalation (Base Case): China narrows the harshest licensing provisions (for non-defense users) and offers quiet relief on specific magnet subcomponents; Washington freezes the 100% tariff plan and extends the current ~30% effective rate while broader talks continue. Markets bounce; the U.S. declares leverage worked; Beijing signals “stability first.”
2. Short-Lived Clash: The U.S. triggers a partial 100% tariff list; China widens controls to additional REEs/magnets. Equities wobble; within weeks both sides seek a standstill after pressure from manufacturers and allies. (This mirrors April’s arc—shock → policy tweak → truce.)
3. Breakthrough Lite: Both leaders use APEC optics to announce a roadmap on critical minerals cooperation (diversification, transparency) and a tariff framework with staged reductions for verified compliance. This requires political cover on both sides but would anchor risk premia lower into 2026.
Why Beijing Thinks Time Is on Its Side
- Structural dominance: China still commands the midstream—especially separation and magnet manufacturing—where replication takes years. This keeps its “off switch” credible even without full embargoes.
- U.S. market optics: Trump’s own comments (“not sustainable”) and past pauses create an expectation of eventual moderation when stocks strain. Beijing reads that as leverage.
- Allied ambivalence: U.S. allies want supply-chain resilience but fear collateral damage from sweeping tariffs. That political geometry nudges Washington toward calibrated, not blanket, penalties.
Counter-Argument: Why the White House Might Still Go Hard
Two forces could invert the script. First, a domestic political premium on toughness—especially if advisors argue that markets will recover quickly from a tariff shock—might encourage a follow-through on 100%. Second, if Beijing overplays its hand (e.g., broad denials to non-defense customers), it risks uniting U.S. and allied opinion around more severe, durational measures. Either path carries recessionary risk if sustained—but a short, sharp confrontation with rapid de-escalation remains the modal outcome.
Market Implications: What to Watch Week by Week
• Policy tape: Any White House language shifting from “100% by Nov. 1” to “pending review” will mechanically compress risk premia. Watch for Bessent–He readouts and pre-briefs to business press.
• Licensing signals from Beijing: Ministry notices that carve out non-defense users, or expedite magnet components, will be treated as de-facto easing.
• Cross-asset tells: REE/magnet supplier equities, freight indices, and semiconductor capital-goods names typically front-run official statements; watch them for early direction.
• APEC communiqués: A vague “framework” can be enough for a relief rally; a timeline with milestones would be a stronger anchor.
Historical Pattern, With a Caveat
April taught a simple lesson: triple-digit tariff signaling can punch markets, and policy softening reliably lifts them. After the initial shock, a 90-day pause and targeted adjustments helped spark one of the strongest relief sessions of the year—and ultimately fed into an August truce that kept effective U.S. duties around 30% rather than the threatened 145%. None of that guarantees a repeat; it merely defines the reaction function that both sides now try to security vulnerability.
Bottom Line
China’s confidence in the current trade confrontation rests on two pillars: structural control of rare-earth processing and magnets, and the belief that U.S. equities cap tariff escalation. The White House’s 100% threat is real, but so is the political gravity of Wall Street. Heading into APEC (Oct. 31–Nov. 1), the most probable path is a cosmetically tough, substantively partial climb-down—some relief on export licensing in exchange for shelving the 100% tariff—followed by longer, technical talks on critical minerals. If markets lurch, expect the dial to soften even faster.
Note: This is analysis of public reporting, not investment or political advice.
