The CCP’s export restriction escalation on lithium batteries, medium and heavy rare earth elements, superhard materials, rare earth equipment, and rare earth-related technologies, and retaliatory actions designed to mirror the United States’ Section 301 shipping fees* (commencing on October 14), have created a flurry of advanced technology geopolitical activity today.
The CCP’s enhanced export restrictions also create a foreign direct product rule (FDPR), requiring a Chinese license for any foreign firm using certain Chinese-origin materials, regardless of where the manufacturing is domiciled (though it’s unclear how this tracing would work). Finally, the CCP has enacted a ban on Chinese citizens from working in unauthorized foreign mining and manufacturing facilities.
All of these announcements come on the back of the Department of Commerce’s new “50 percent” rule and China’s anti-trust investigation of Qualcomm. While the two sides’ stated preference of the “status quo” (extension due to expire in November) leading up to a Trump/Xi summit at APEC on October 29 appeared to be a shared strategy, signs had pointed to an unraveling in recent weeks. The Chinese are either now attempting to exert maximum negotiation leverage or they are simply taking their proverbial ball and going home (from negotiations). As USTR Ambassador Greer tweeted today, “Things that were routine are no longer routine at all.”
Prior to today’s news, the Senate adopted its version of the outbound investment language (FIGHT China Act sponsored by Sen. Cornyn) and the BIOSECURE Act, as well as a provision requiring advanced chipmakers to provide priority access to U.S. firms prior to selling their products to China (GAIN Act sponsored by Sen. Banks). Both policies were added to the Senate’s FY26 National Defense Authorization Act (NDAA). Though the House did not include these provisions in its version of the NDAA that passed in September, they will now be “conference-able” items between the two chambers as they seek a year-end bicameral NDAA deal to be sent to the President.
This morning, with news breaking of China’s trade escalation, the President posted on Truth Social that talks with Xi at APEC were off due to China’s “hostile move.” The President confirmed that the Administration had been taken by surprise but would respond forcefully. House China Select Committee Chairman John Moolenaar (R-MI) echoed the President, stating:
“China’s action today is an economic declaration of war against the United States and a slap in the face to President Trump amid his efforts to fight for a level-playing field. China has fired a loaded gun at the American economy, seeking to cut off critical minerals used to make the semiconductors that power the American military, economy, and devices we use every day including cars, phones, computers, and TVs.”
We have been in discussions with Treasury throughout the day on the impacts to industry, particularly shipping. According to Treasury staff, the President and Secretary Bessent are now considering “all options” both “public and non-public.” The most obvious is tariffs. To that end, the President announced on Truth Social this afternoon that the U.S. would levy an additional 100 percent tariff on all Chinese goods effective November 1 (“or sooner”), as well as enact export controls on “any and all critical software.” The 100 percent is to be stacked on top of existing tariffs (i.e., reciprocal, fentanyl).
While tariffs and export controls were expected levers, it’s clear the Administration is considering additional actions. News reports highlight a proposal to ban Chinese airlines from landing in the U.S. if they cross Russian airspace, restrictions on the Chinese router company TP-Link Systems, and the addition of 19 new Chinese companies to the Entity List. As Trump wrote this afternoon, “It is impossible to believe that China would have taken such an action, but they have, and the rest is History.” Thus, we should be prepared for a substantial escalation between the two sides, with a particular focus on advanced technology.
The U.S. trade agenda has been somewhat unsettled leading up to the events of the last 24 hours, perhaps emboldening the Chinese. Firstly, the U.S. has been clear about its disadvantaged agricultural position, demanding a purchasing agreement with China, with a bumper crop of American farmer soybeans creating all the more urgency. The Administration’s hands are all the more tied here due to China’s enhanced agricultural relationship with Brazil and the U.S. government’s shutdown. The President is seeking to distribute farm payments in the interim but is statutorily capped in the amount of tariff revenue he can use without congressional action.
Highlighting the super powers’ struggle to create a dominant trading bloc, the President has recently voiced a thawing of relations with both India and Brazil. But those talks are nascent. Meanwhile, tensions with the EU have been heightened over areas outside of the pending trade deal, namely digital services taxes (DSTs). Similarly, the pending trade deal with South Korea has hit a few bumps over deportations and the particulars of the promised investment fund. Trade talks are, however, advancing with Indonesia and Treasury has been helping to shore up the Argentinian economy.
OUTLOOK/ANALYSIS. In short, this a complex trade battle between the world’s two largest economies and it has instantly been compounded, literally overnight. Ultimately, we believe this will either go one of two ways: a largescale escalation or a truce produced by a Trump/Xi call. These events are quickly evolving and we will keep you posted as we hear more.
*Note: U.S. Customs and Border patrol announced that “The burden for determining if a vessel owes the fee is on the operator, NOT CBP.” What remains to be seen in China’s retaliatory shipping fee is what the definition of an “operator” will be.
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