100% tariffs by Donald Trump? China’s real revenge is buried inside every AI chip

Tensions between the U.S. and China escalated sharply this week after Donald Trump announced 100% tariffs on Chinese goods and threatened to cancel an upcoming meeting with President Xi Jinping. Beijing responded not with matching tariffs, but with sweeping new controls on rare earth exports—materials critical to the U.S. chip and defense industries.

The sudden back-and-forth between the world’s two largest economies has cast fresh uncertainty over a planned Trump–Xi summit in South Korea, where both sides were expected to finalize a broad trade agreement.

Instead, the conflict appears to be widening—from finished goods to the materials that make them.

On October 9, China’s Ministry of Commerce introduced new rules requiring government approval for the export of any product containing more than 0.1% Chinese rare earths. 

That small fraction touches nearly every advanced semiconductor supply chain, including chips used in AI, smartphones, satellites, and military systems.

A U.S. semiconductor executive was quoted in a Bloomberg report saying the restrictions have triggered immediate disruptions: “We’re rushing to assess exposure. The licensing process could halt production across multiple lines.”

The following day, Trump fired back publicly with a sweeping 100% tariff on Chinese goods starting November 1 and warned the Xi meeting may not happen.

At the core of the dispute are dueling export controls. 

The U.S. has blocked China’s access to high-end semiconductors and AI chips. China is now limiting America’s access to the raw materials needed to produce them.

China controls:

• 61% of global rare earth mining
• 92% of global rare earth processing
• Over 90% of rare earth magnets

These materials—such as cerium oxide, neodymium, and yttrium—are essential to chip fabrication. Without them, tools made by companies like ASML, which manufactures the machines behind nearly all cutting-edge chips, cannot operate.

Even U.S. and Australian mining operations still rely on Chinese processors. Replacing that capacity could take 5 to 10 years, according to analysts.

Rare earth prices have already spiked 200% in 2024 alone, and early signs of supply bottlenecks are emerging.