Markets react as Trump threatens sweeping tariffs over China's rare earths clampdown
United States Treasury yields fell sharply Friday after President Donald Trump threatened a “massive increase of tariffs” on Chinese imports, escalating tensions over China’s latest export controls on rare earth elements.
China’s Ministry of Commerce announced Thursday that foreign entities must now obtain a license to export products containing more than 0.1% rare earths sourced from China, or manufactured using Chinese extraction, refining, or recycling technology.
The new rules, set to take effect December 1, target critical minerals used in everything from electric vehicles to semiconductors and defense systems.
China’s rare earth controls spark global concern
Trump, in his post, accused Beijing of “becoming very hostile” and “sending letters to countries throughout the world” to impose sweeping export controls.
“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.
He described China’s move as “a rather sinister and hostile” attempt to leverage its dominant position in rare earths, adding, “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.”
The president said he had not spoken to Chinese President Xi Jinping and threatened to cancel their planned meeting at the upcoming Asia-Pacific Economic Cooperation summit in South Korea.
“This was a real surprise, not only to me, but to all the leaders of the free world. I was to meet President Xi in two weeks, at APEC, in South Korea, but now there seems to be no reason to do so,” Trump said.
Market reaction: Bond yields tumble, investors seek safety
The threat of higher tariffs and more trade tensions shook global markets. Investors rushed to safe-haven assets, causing US Treasury yields to fall.
The 10-year Treasury yield dropped 8 basis points to 4.063%, while the 2-year yield slid more than 7 basis points to 3.522%. The 30-year yield also fell 8 basis points to 4.654%.
Lower Treasury yields typically translate to reduced mortgage rates, at least in the short term, potentially offering relief to borrowers. However, renewed trade hostilities could fuel inflation if tariffs push up the cost of imported goods, complicating the Federal Reserve’s path on interest rates.
Fed Governor Christopher Waller said Friday that while he still supports cutting rates, the central bank needs to be “cautious about it.”
“One of the policies that we are calculating at this moment is a massive increase of tariffs on Chinese products coming into the United States of America,” Trump said.
“There are many other countermeasures that are, likewise, under serious consideration.”
Rare earths are essential for a range of high-tech and green energy applications, and China’s dominance has long been a strategic concern for US policymakers.
Industry experts warn that a prolonged standoff could drive up costs for manufacturers and consumers, while also fueling volatility in bond and equity markets. The mortgage sector, closely tied to Treasury yields, could see further rate swings if the dispute escalates.
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