In Depth: China, U.S. Race to Deny the Other Economic Leverage

In early June 2025, Chinese and U.S. officials held new trade talks in London after a phone call between President Xi Jinping and U.S. President Donald Trump helped break months of deadlock following a prior 90-day tariff truce. The talks led China’s Ministry of Commerce, on June 27, to announce that it would approve “export applications for eligible controlled items” such as rare earths, provided the U.S. lifted certain restrictive measures on China. The U.S. confirmed China would resume rare earth exports, prompting both sides to roll back recent countermeasures, signaling an easing of tensions. [para. 1][para. 2][para. 3][para. 4][para. 5]

Following the London meeting, American companies like Siemens AG, Synopsys Inc., and Cadence Design Systems Inc. restored access to their electronic design automation (EDA) software for Chinese clients after the U.S. Commerce Department reversed recent export restrictions. Nvidia, too, reported it was resuming its supply chain for H20 AI chips to China, anticipating approval from Washington for exports. These chips, previously restricted by the Trump administration in April, are less powerful alternatives allowed under tighter U.S. controls to limit China’s AI advancements. [para. 6][para. 7][para. 8][para. 9]

In response to the U.S. loosening its export policy, China increased its exports of rare earth permanent magnets to the U.S., shipping 352.8 metric tons in June—a sevenfold monthly increase, but still 52% lower year-on-year. Yet, this came after China had severely restricted rare earth exports, including crucial elements like samarium and terbium, in April, directly impacting U.S. industries and causing concern among American manufacturers. The move was widely seen as retaliation for President Trump’s tariffs. [para. 10][para. 11][para. 12]

Despite the recent compromises, both countries are intensifying efforts to reduce mutual dependence. China is making strong strides towards chipmaking self-sufficiency, as seen in the rapid development and adoption of domestic chips by firms like Huawei and Baidu, and expansion by other local GPU designers. Meanwhile, the U.S. aims to build a domestic rare earth supply chain, solidified by agreements with Ukraine and Saudi Arabia to secure future access, and investments in MP Materials, the sole U.S. rare earth miner, to establish a major U.S.-based supply of rare earth magnets by 2028. [para. 13][para. 14][para. 15][para. 16][para. 17][para. 18][para. 19][para. 20][para. 21]

U.S. chip export controls were steadily tightened from 2022 through 2025. Measures included barring sales of cutting-edge chips and manufacturing equipment to China, adding dozens of Chinese research and tech entities to blacklists, and pressuring global allies like Japan and the Netherlands to adopt parallel controls. Under both the Biden and Trump administrations, Nvidia’s specialized chips for China have faced export bans, prompting Chinese tech companies to innovate and stockpile, while nascent Chinese chipmakers like Moore Threads and MetaX pursue IPOs despite financial losses, aiming for long-term independence. Many Chinese companies are focused on developing domestic alternatives, reducing the risks from unpredictable U.S. policy shifts. [Table][para. 22][para. 23][para. 24][para. 25][para. 26]

On the U.S. rare earths front, large investments and government support (such as guaranteeing a minimum purchase price for rare earth compounds) are aiming to boost the local industry. MP Materials is set to expand and add a new magnet plant by 2028, but critics warn that the U.S. lacks large heavy rare earth reserves and separation capacity, with some operations still reliant on processing in China. As of 2024, despite possessing 1.9 million metric tons in reserves, the U.S. remains dependent on China for key steps in the supply chain, highlighting ongoing vulnerabilities despite policy progress. [para. 27][para. 28][para. 29][para. 30][para. 31][para. 32][para. 33][para. 34][para. 35][para. 36][para. 37]