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Donald Trump warned 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 accused China on Friday of becoming “very hostile” after Beijing imposed sweeping export controls on crucial minerals this week.
In a post on Truth Social, Trump suggested he would cancel a meeting with Xi expected to take place on the sidelines of the Apec forum in South Korea in late October. International companies saw the planned meeting as a step toward stabilizing US-China relations.
“This was a real surprise, not just to me, but to all the leaders of the free world,” Trump said of the new China policy. “In two weeks I was supposed to meet President Xi… but now there seems to be no reason for that.”
Trump said the US had also been contacted by “other countries that are extremely angry about this major trade hostility that came out of nowhere.”
His comments immediately hit the markets, with the S&P 500 falling as much as 2 percent, setting the index on course for its biggest single-day drop since late April. The Nasdaq Composite fell as much as 2.7 percent. The yield on the two-year U.S. Treasury bond fell to a three-week low, while the dollar fell 0.5 percent against a basket of currencies.
China on Wednesday unveiled the package of export controls that will disrupt the global supply of rare earths and crucial minerals. Under the new rules, foreign companies would have to get permission from Beijing to export critical magnets and other products containing even small amounts of rare earth metals 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 U.S. content to China.
The move was widely seen as an attempt to build influence before the two leaders held their first meeting since Trump returned to office.
“No one 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 China,” Trump said in his post.
Trump’s threat to impose new high tariffs 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 percent tariffs and Xi retaliated by slapping 125 percent duties on US goods.
According to an analysis by the Peterson Institute for International Economics, the average U.S. tariff on imports from China is nearly 58 percent. The average Chinese tariff on American goods is about 37 percent.
The economic tensions have had a dramatic impact on trade flows, with US Treasury Secretary Scott Bessent warning earlier this year that it amounted to a de facto trade embargo.
Trump warned on Friday 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 also being seriously considered.”
American and Chinese negotiators reached a truce in the trade war at a meeting in Geneva earlier this year. But the ceasefire was in jeopardy after China began slowing exports of rare earth metals, which are crucial to industries ranging from auto to defense.
The two sides resolved the initial rare earths 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, which keeps rates at current levels, expires 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 that the US has more options it could deploy, such as requiring chip makers to obtain a license to sell 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 was “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 some time now, starting with the ‘magnets’ and other elements they have quietly assembled in a somewhat 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
