Commentary: U.S.-China Tensions Flare, But History Suggests a Truce Is Coming

On October 10, U.S. President Donald Trump publicly criticized China’s tighter controls on rare-earth exports through several social media posts. He questioned the likelihood of holding a planned meeting with China’s president at the APEC summit in South Korea and announced that if effective November 1, the U.S. might impose a 100% tariff on Chinese goods, as well as restrict exports of key software technologies to China[para. 1]. This latest escalation comes amid a rapidly shifting diplomatic standoff, though the medium-term trajectory appears more predictable. The escalation is consistent with patterns observed during Trump’s current term (sometimes referred to as “Trump 2.0”), and those patterns provide a basis for forecasting how the dispute may evolve[para. 2].

The immediate cause for the fresh flare-up appears connected to China’s reaction to U.S. export controls and fees on Chinese shipping, announced after mid-September trade talks in Madrid[para. 3]. The U.S. Bureau of Industry and Security introduced a significant expansion of export controls on September 29, targeting subsidiaries with a majority (>50%) stake held by blacklisted companies—a move affecting thousands of Chinese firms. China’s Ministry of Commerce quickly issued a strong protest, heightening tensions right before China’s national holidays[para. 4]. Further, on October 3, U.S. Customs and Border Protection introduced heavy new fees on Chinese-owned and Chinese-made vessels, with fees sharply differentiated by vessel ownership origin, and introduced punitive measures for noncompliance[para. 5].

China retaliated on October 9 with stricter rare earth export rules, such as requiring export licenses for products even containing just 0.1% rare earths, and completely banning rare earth exports for military uses. The following day, China imposed special port dues on U.S. ships[para. 6]. These developments intersected with an ongoing U.S. government shutdown and international crises, such as conflict in Gaza, which provided a backdrop for Trump’s confrontational approach[para. 7].

The leaders of both countries had tentatively agreed to meet at the APEC summit in South Korea (Oct. 31-Nov. 1), but the time window for de-escalation was tight. Historically, under Trump 2.0, the dispute cycle from escalation to negotiation and then to de-escalation has averaged about one month, with some cycles resolving in under three weeks. The current tensions could, in theory, resolve just as quickly given recent experience and prior rounds of negotiation[para. 8].

Medium-term, de-escalation seems likely. Earlier in April-May, the U.S. experienced shortages and inflation due to stiff tariffs, which harmed U.S. tariff revenue and raised incentives to negotiate. China’s export controls on rare-earths during that period resulted in supply disruptions, impacting firms like Ford and pressing both sides toward talks; a joint statement was released within five weeks[para. 9][para. 10]. In the present situation, with heightened polarization in the U.S. and a government shutdown, a high-intensity decoupling risks deepening America’s internal divides. Thus, while public rhetoric is tough, the U.S. will likely pursue negotiations soon[para. 11].

For financial markets, the near-term focus will be on China’s response. Although markets are less volatile than earlier in the year, underlying risks remain high, especially with global assets at elevated levels[para. 12]. China appears to favor negotiation over confrontation; its rare-earth controls will not take effect until December 1, arguably leaving room for compromise. However, risks remain that the dispute could spread into finance and investment sectors[para. 13].

Chinese companies, having weathered earlier disputes, are expected to act calmly. Despite tariff peaks of 145% in April-May, China’s export growth remained strong—6.2% in Q2—with growth likely accelerating in September due to robust demand and strategic shifts toward Southeast Asian and high-tech markets[para. 14]. This resilience has enabled China to maintain its global export share, despite ongoing trade turbulence[para. 14].