China's Rare Earth Policy Could 'Backfire', Warn Analysts While Highlighting Options Available To Trump: Beijing 'May Find Itself Cut Off…'

China’s recent move to tighten its rare earths export controls may not be as comprehensive as initially feared, but they could still pose a significant risk, according to a new analysis.

Beijing’s Policy Shift Risks US Retaliation

The Chinese government’s recent policy shift, while not as extensive as initially feared, may not produce the desired outcome, said Julian Evans-Pritchard, head of China economics at Capital Economics, and Leah Fahy, a China economist. as reported by Fortune.

“China's recent actions were a bit of a gamble and there is a risk that they could backfire," they wrote.

Evans-Pritchard and Fahy, highlighted potential U.S. countermeasures that could further disrupt China’s economy. These include leveraging control of the commercial aviation supply chain, potentially blocking exports of critical components or entire aircraft.

They also noted that the U.S. could impact China's economy by focusing on its dependence on the Windows operating system, installed on roughly 90% of Chinese laptops and PCs. Trump could compel Microsoft (NASDAQ:MSFT) to stop sales and updates in China, leaving security flaws unpatched and potentially diminishing the global attractiveness of Chinese-made mobile devices.

The analysts also pointed out that there's the U.S.'s control over global finance and its infrastructure. Evans-Pritchard and Fahy noted that Trump could impose further sanctions on Chinese firms by freezing their dollar-denominated assets and restricting their access to the SWIFT payment network.

“China may find itself cut off from Western markets and technology to an even greater degree than it is today," told the analysts.

See Also: Scott Bessent’s ‘Constructive’ Call Sets Up US–China Negotiations

Trump Hopeful On China

Earlier, Vice President JD Vance had asserted that the U.S. holds a stronger position than China in the ongoing trade tensions, expressing optimism that Beijing will opt for a "reasonable" approach.

On Sunday, Trump told Maria Bartiromo from Fox News that he is “not looking to destroy China,” and hopes to have a fair deal with Chinese President Xi Jinping. He also made it clear that he doesn’t want to use any “cards” against China.

Huang Sounds Caution

However, recent events have shown that the trade tensions are far from over. Jensen Huang, the CEO of Nvidia (NASDAQ:NVDA), revealed that the company’s market share in China has collapsed from 95% to zero. Huang warned that U.S. policies cutting off access to China's tech market would be a mistake, potentially harming both nations, as China remains the world's second-largest computer market with a vibrant ecosystem.

This was followed by Alibaba‘s (NYSE:BABA) introduction of a new computing pooling system that dramatically reduces the reliance on Nvidia GPUs for AI models.

READ NEXT:

• Trump Tariffs Fail To Dent China’s Exports As Beijing Moves Sales To Other Markets, But Economic Growth Slows — Asian Markets Open Strong

Image via Shutterstock

Disclaimer: This content was partially produced with the help of AI tools and was reviewed and published by Benzinga editors.