China Threatens Retaliation as U.S. ’Breaches’ Trade Deal—Here Comes the Economic Brinkmanship

Trade tensions flare again as Beijing accuses Washington of reneging on their May agreement—because nothing says ’stable markets’ like geopolitical saber-rattling.

China’s trade ministry vows ’forceful measures’ in response, though they’ve kept the specifics vague—classic move when you want to spook markets without actually committing to action.

Meanwhile, Wall Street barely flinches—because at this point, trade wars are just another Tuesday for algorithmic traders to exploit.

China holds rare earths, blames US for new friction

Beijing hasn’t eased the restrictions on its rare earth exports that were put in place back in April. Those exports are critical to US manufacturing, especially for the automotive, electronics, and defense industries. With China dragging its feet on approvals, factories in the US are now warning about possible work stoppages. Trump expected the Geneva deal to unlock those shipments—but China has other ideas.

The commerce ministry says the real problem is the string of new actions the US has taken since the deal was signed. The ministry specifically cited the global warning against Huawei chips, a ban on sales of chip design software to Chinese firms, and the cancellation of visas for Chinese students.

In a statement, it said, “If the US insists on going its own way and continues to harm China’s interests, China will continue to take strong and resolute measures to safeguard its legitimate rights.”

It added, “The US has unilaterally provoked new trade frictions. Instead of reflecting on its own actions, it has groundlessly accused China of breaching the consensus.” On Monday, Chinese state media reported on coordinated enforcement actions across the country aimed at cracking down on illegal mining and unauthorized rare earth exports, making it clear that China has no plans to ease up anytime soon.

Trump pushes for Xi call as military tensions add pressure

Trump still hopes to talk directly with Xi Jinping to break the deadlock. He’s mentioned this call idea multiple times in recent months, but it hasn’t happened yet.

Kevin Hassett, director of the National Economic Council, said on Sunday that a call could take place “as early as this week.” But experts aren’t holding their breath. Hofman, a senior analyst, said Trump is pushing for the call because “it caters to his desire to be seen as the master dealmaker.”

Meanwhile, China’s political tradition is to let lower-level officials reach consensus before any leader-to-leader talks happen.

There’s also growing confusion inside the US government itself. Dennis Wilder, a former senior WHITE House intelligence official, said there’s no clear coordination between US agencies. He blamed a major shake-up of the National Security Committee, which Trump ordered recently, for the mess.

“Bessent is desperate for the president to get on a call with Xi … to weigh in and install some coherence in the government policies,” Wilder said.

Over the weekend, US Defense Secretary Pete Hegseth used the Shangri-La Dialogue summit in Singapore to slam China’s military activities in the Indo-Pacific, calling them “real” and “imminent” threats. He urged US allies to increase their defense budgets and push back against Beijing’s military pressure.

The warning was made even sharper by the absence of China’s defense minister from the summit, which was a break from tradition and the first no-show since 2019.

The backlash was immediate. China’s embassy in Singapore issued a response, calling the US “the biggest troublemaker for regional peace and stability.” A defense ministry spokesperson also accused Hegseth of “instigating cold-war mentality” and “severely challenging China’s sovereignty and rights.”

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