China's Rare Earth Gambit and Trump's Tariff Thunder: Why such Escalation and What is Next?

October started on the wrong foot as far as U.S. China tensions are concerned. The clash intensified with Beijing's far-reaching rare earth element (REE) export controls, a marked upgrade from April's limited restrictions on seven REEs that primarily affected raw exports and were eased through bilateral talks in Geneva and Madrid, allowing U.S. firms to stockpile and diversify via Australia with minimal impact. The new measures, which should become effective on November 8 unless the US and China manage to agree otherwise, are wider and deeper on many fronts. Firstly, they add five heavy REEs essential for EV magnets and munitions. Secondly they extend to protect the technology behind REE refining but also the equipment and even the human capital behind. In fact, they impose "Chinese persons" rules barring nationals from overseas REE work without license, effectively making them extraterritorial. In other words, the new export controls on Chinese REEs echo U.S. "foreign direct product" and "U.S. persons" regulations and grant Beijing global veto power, potentially spawning a Chinese "Entity List" for REE-dependent entities, which – if finally applied - is bound to disrupt broader supply chains much more.This escalation counters U.S. steps like the September 29 "Affiliates Rule" extending Entity List curbs to 50%+ owned affiliates, thwarting Chinese evasion of export controls; but also the US Senate passage of the BIOSECURE Act, prohibiting U.S. biotech sourcing from targeted Chinese companies; and the FIGHT China Act, blocking US outbound investments in Chinese semiconductors, AI, and quantum sectors.  Beyond retaliating against US recent tightening of economic security actions against China, Taiwan's role looms large, as Beijing's added extraterritoriality to REE export controls may deter TSMC's potential transfer of high end chip production to the U.S,, following the US proposal of a "50-50" production split with Taiwan on September 30.Trump's further escalation on October 10 with threatened 100% tariffs on Chinese goods from November 1 and doubts about the meeting with Xi on October 31 at the APEC summit have created market havoc.  China has further retaliated with Nvidia probes, AI chip port inspections for U.S.-linked vessel fees, etc while still calling for an urgent meeting between US and China negotiators. In the same vein, on Sunday 12th, Trump used his social media to try to de-escalate which seems to indicate that a new round of in person negotiations might happen and potentially save the first in-person meeting between Trump and Xi at the APEC meeting next October 31.Even if such de-escalation happens, the fact that both sides have massively increased the threat of export controls for critical aspects of the global supply chain, and especially REEs, will only accelerate the US push for supply chain bifurcation. In the same way as China has been building self-reliance for years.  Global companies, especially in the semiconductor, EV but also military space, will pay a price for such bifurcation.