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Donald Trump warned that he was considering a “massive increase” in US tariffs on China and threatened to cancel his planned summit with Xi Jinping, reigniting trade tensions between the countries.
The US president on Friday accused China of becoming “very hostile” after Beijing this week imposed sweeping export controls on critical minerals.
In a post on Truth Social, Trump suggested that he would cancel a meeting with Xi that was expected to happen on the margins of the Apec forum in South Korea at the end of October. International companies had seen the planned meeting as a step towards stabilising US-China relations.
“This was a real surprise, not only to me, but to all the Leaders of the Free World,” Trump said about the new Chinese policy. “I was to meet President Xi in two weeks . . . but now there seems to be no reason to do so.”
Trump said the US had also been contacted by “other Countries who are extremely angry at this great Trade hostility, which came out of nowhere”.
His comments immediately hit markets, with the S&P 500 dropping as much as 2 per cent, putting the index course for its biggest one-day drop since late April. The Nasdaq Composite fell as much as 2.7 per cent. The yield on the two-year US Treasury tumbled to its lowest level in three weeks, while the dollar fell 0.5 per cent against a basket of currencies.
China on Wednesday unveiled the package of export controls that will disrupt global supplies of rare earths and critical minerals. Under the new rules, foreign companies would have to obtain Beijing’s permission to export critical magnets and other products that contain even small amounts of rare earths sourced from China.
It amounts to a Chinese version of the extraterritorial “foreign direct product rule” that Washington has used to require companies from third countries to obtain licenses to export chips with US content to China.
The move was widely viewed as an effort to create leverage before the two leaders held their first meeting since Trump returned to office.
“Nobody has ever seen anything like this but, essentially, it would ‘clog’ the Markets, and make life difficult for virtually every Country in the World, especially for China,” Trump said in his post.
Trump’s threat to impose steep new levies on China raises the prospect of the two countries returning to the full-blown trade war that erupted earlier this year when he hit Beijing with 145 per cent tariffs and Xi retaliated by slapping 125 per cent levies on goods coming from the US.
The average US tariff on imports from China is near 58 per cent, according to analysis from the Peterson Institute for International Economics. China’s average tariff on US goods is about 37 per cent.
The economic tensions have had a dramatic impact on trade flows, which US Treasury secretary Scott Bessent earlier this year warned amounted to a de facto trade embargo.
Trump on Friday warned that he might be forced to “financially counter” the Chinese move, depending on how Beijing explained its new policy. In addition to the threat of higher tariffs, Trump said: “There are many other countermeasures that are, likewise, under serious consideration.”
US and Chinese negotiators reached a truce in the trade war earlier this year in a meeting in Geneva. But the ceasefire came under threat after China started slowing the export of rare earths, which are critical to industries ranging from the auto sector to defence.
The two sides resolved the initial rare earth issue in London in June and have since held trade talks in Stockholm and Madrid that paved the way for Trump to meet Xi. The current 90-day ceasefire that holds tariffs at current levels is set to expire in mid-November.
Some experts have warned that China has leverage over the US because of its dominance in rare earths. However, others have suggested the US has more options that it could deploy, such as requiring chipmakers to obtain a licence to sell any semiconductors to China.
Trump said the new Chinese measures were surprising because the US-China relationship had been “very good” over the past six months, but he claimed Beijing had been “lying in wait” to attack.
“There is no way that China should be allowed to hold the World ‘captive’, but that seems to have been their plan for quite some time, starting with the ‘Magnets’ and, other Elements that they have quietly amassed into somewhat of a Monopoly position, a rather sinister and hostile move, to say the least,” he said.
Additional reporting by Peter Wells and Kate Duguid in New York and Emily Herbert in London