In today’s Sino-American trade contest, each side holds two trump cards (no pun intended). Washington’s hand holds the high tariffs that limit China’s access to what was once its largest and most lucrative export market. Washington’s second trump card is the ability to deny China the advanced semiconductors it needs to support its technology efforts, especially in artificial intelligence (AI). 

Beijing’s hand holds the rare earth elements card. The country controls some 60 percent of the world’s rare earth mining and some 90 percent of its refining capacity—a near-monopoly on products crucial to modern technologies. Even more significant and dangerous is China’s second card: control of a significant portion of the world’s pharmaceutical supply chain. 

Both Beijing and Washington know that the more actively either plays its respective card, the more it invites a counterplay of the other’s trumps and heightened efforts to neutralize its opponent’s advantage. But these counters take time to have an effect, so that any resolution, short of the unlikely event of trade peace, will take place over a long horizon.

So far, Washington has played its cards more actively than has Beijing. President Donald Trump started the process late in his first term, imposing tariffs on Chinese goods entering the country. President Joe Biden, though he criticized the tariffs during the 2020 election campaign, embraced them once he was in office and indeed added to them. He also made the initial effort to limit Chinese access to advanced semiconductors and semiconductor manufacturing equipment. 

When Trump returned to office for the second time, he imposed still higher tariffs on Chinese products and imposed port fees on Chinese vessels. Trump also moved to tighten the original Biden restrictions on sales of advanced semiconductors to China. When the Biden regulations went into effect, Nvidia, a maker of advanced chips, developed a workaround with its H100 chips. These were still more powerful than anything China could produce, but eluded the ban because they were that much less powerful than Nvidia’s top-of-the-line H200 chip. When the Biden administration closed that loophole, Nvidia turned to a similarly designed H20 chip. Last spring, however, Trump extended the ban to these modified chips.

It was at about this time—and not coincidentally—that Beijing played its rare earth card, threatening to cut off world supplies. It had already prepared for this eventuality late in 2024 and early in 2025 by imposing strict licensing rules on any exports of rare earth elements. Even before Beijing activated the restrictions, mining companies and refiners, to........

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