Rare earths and rising tariffs: Sector implications amid US-China tensions

China and Hong Kong stock markets declined on October 13, 2025, alongside major Asian indexes, following the US announcement of a potential 100% tariff on Chinese imports over the weekend.

1. What happened?

• Tariff escalation: On October 10, 2025, the US announced a potential 100% tariff on Chinese imports, effective November 1, 2025, stating that the move was in response to China’s newly announced export controls.¹ President Trump and Vice President Vance have since signaled openness to dialogue, suggesting the announcement may be part of a broader negotiation strategy.
• China’s export controls: The Ministry of Commerce clarified that its newly announced export controls are not a blanket ban, and applications meeting regulatory standards will be approved. These measures, introduced on October 9, apply to rare earth minerals and related technologies, and will take effect on December 1, 2025.²
• Both sides have since adopted a more measured tone, leaving room for constructive engagement ahead of the APEC summit and the November 10 deadline for the next phase of talks.

2. Our views

• Negotiation tactics at play: The recent announcements from both the US and China appear to reflect strategic positioning ahead of the upcoming APEC summit and the November 10 deadline for the next phase of trade discussions. While the proposed tariff level is notable, signals from both sides including expressions of openness to dialogue suggest that these developments may be part of a broader negotiation framework.
• Timing signals strategic intent: The effective dates - November 1 for the proposed US tariffs and software export controls, and December 1 for China’s rare earth licensing, indicate a deliberate pacing that allows room for engagement post-APEC. This contrasts with previous rounds of trade actions that were implemented more abruptly.
• China’s rare earth policy: Based on public statements, China’s export control measures are not intended as a blanket restriction. Rather, they appear focused on tightening oversight and addressing transshipment loopholes through third countries. The Ministry of Commerce has clarified that applications meeting regulatory standards will continue to be approved.
• Economic realities of tariffs: From our conversations with Chinese exporters, we understand that tariffs at or above 100% are difficult to absorb, and many have opted to cancel shipments under such conditions. Rare earth materials also play a vital role in key US industries, including automotive, aerospace, and semiconductors, making supply chain stability a shared interest. Given the significant economic implications, we believe that this scenario may reflect part of a broader negotiation approach, rather than an eventual outcome.

3. Looking ahead – investment implications and sector impacts

• We are closely monitoring macro developments and sector-level implications. However, we believe the key lies in company-specific analysis. This environment reinforces the importance of bottom-up stock selection, allowing fund managers to identify resilient businesses and uncover opportunities amid volatility, benefiting from potential consolidation.
• While short-term market reactions may be choppy, we see this as a potential entry point for long-term investors, especially where valuations are compelling. We believe that investors could focus on companies with strong fundamentals, pricing power, and strategic positioning to navigate trade uncertainties.
• Importantly, China’s exports have shown resilience and diversified to other regions, with recent data indicating a strong rebound in global shipments. This continues to provide support to the domestic economy and market sentiment, even as trade negotiations evolve.
• China’s exports to the US are at 10.4% of all of China’s exports as of September trade data³, which dropped to recent low.
• Under the current market environment, we believe it makes sense to focus on domestic-related and technology innovation companies, while being less exposed to export-related stocks.

Investment risks

The value of investments and any income will fluctuate (this may partly be the result of exchange rate fluctuations) and investors may not get back the full amount invested. When investing in less developed countries, you should be prepared to accept significantly large fluctuations in value. Investment in certain securities listed in China can involve significant regulatory constraints that may affect liquidity and/or investment performance.