The U.S. and China Have a Trust Problem

It has been another bumpy week in U.S.-China trade ties. Beijing on Thursday accused Washington of stoking panic over its new rare earth export controls after Treasury Secretary Scott Bessent warned a day earlier it would prompt the world to “decouple” from China. The latest barbs come after China announced further rare earth export restrictions last week in a move that triggered a familiar cycle of alarm in Washington. U.S. officials called it “coercion” and a “power grab,” while Beijing framed the measures as routine and defensive. The truth lies somewhere in between, and that gap captures how far the world’s two largest economies have drifted from real dialogue to monologues. The U.S. and China once again interpret the same events through incompatible mental frameworks. For Washington, the restrictions look like a targeted move to weaponize supply chains and gain leverage in ongoing talks. They are being seen as a bad faith move that blindsided U.S. officials. But the frustration runs deeper than the latest measure; there is a long-running view that China unfairly props up industries through extensive state support. For Beijing, however, the measures were a predictable follow-up to September’s “Affiliates Rule,” which expanded U.S. export controls to any company worldwide with more than 50% Chinese ownership. That move was seen as extending American jurisdiction deep into the global economy and across Chinese firms that have little to do with sensitive technologies. Read More: China’s Wildcard in the Trump-Xi Summit Neither side is imagining things. The U.S. has indeed built one of the most far-reaching export-control systems in modern history, explicitly designed to slow China’s access to advanced semiconductors and manufacturing tools. Beijing has also spent years developing countermeasures modeled after the U.S. export-control system—a mix of domestic regulation, licensing regimes, and retaliatory investigations meant to show that it, too, can impose costs. The seeds of this mistrust were planted years ago. From Beijing’s perspective, Washington’s export restrictions on telecoms firms ZTE and Huawei in 2018 marked a turning point. National-security measures that once targeted specific violations of sanctions and technology-transfer rules have since evolved into a long-term economic containment framework of tariffs, blacklists, and sanctions touching sectors as varied as AI chips, cloud computing, and manufacturing software. By 2023, China had rolled out its own mechanisms: an “Unreliable Entity List,” an “Anti-Foreign Sanctions Law,” and a series of export controls on critical minerals. The latest rare-earth restrictions represent the newest addition to that system. The Chinese rationale is that if the U.S. claims the right to manage technology flows on national-security grounds, China must do the same for strategic resources it dominates. Both sides are now using the same regulatory tools without any shared understanding of off-ramps. What makes this dynamic so hard to manage is the mismatch in political and bureaucratic systems. The U.S. regulatory system is more transparent, while the policymaking process is shaped largely by a web of independent yet overlapping agencies, Congress, and the Executive Branch. China’s system is more centralized but also far more opaque. The decision-making process is largely hidden, and political deliberations are seldom made public—making it hard to decipher. The U.S. often airs its internal debates publicly—though not always, especially on national security matters. China, by contrast, communicates through political rhetoric that obscures bureaucratic intent. U.S. officials tend to see Beijing’s actions as top-down and highly strategic, overlooking their internal complexity. Chinese officials, meanwhile, often view U.S. trade measures as coordinated efforts to contain China, when many such moves actually come from agencies operating on separate tracks. Each side, in short, overestimates the other’s coherence. If this dynamic of talking past each other sounds dangerous, it should. Fortunately, Beijing’s announcements this month—six in total, numbered 55 through 62—sounded more dramatic than they were in practice. The new licensing requirements slow, but do not ban, rare earth exports. But U.S. and Chinese firms alike face rising compliance burdens, disrupted shipments, and growing uncertainty about supply chains. Multinationals now operate under two incompatible regulatory regimes, forced to navigate between them with little clarity. This environment rewards suspicion and punishes good-faith efforts to find common ground. Technocrats once relied on quiet back channels to clarify intent, but now messages move through media, and often conflicting social posts, where misinterpretation thrives. The hardening public mood in both capitals reinforces hawkish instincts. Lacking reliable translation—bureaucratic, political, and cultural—each side keeps confirming its worst assumptions about the other. It is also important to recognize that, at least for the time being, Beijing holds leverage. China dominates nearly every stage of the rare earth supply chain. It controls about 35% of global reserves, produces over 70% of mined rare earths, and accounts for roughly 90% of refining capacity. These minerals, small in volume but vital in function, are essential to electric vehicles, consumer electronics, wind turbines, and defense systems. A disruption would impose real costs on U.S. industries worth trillions of dollars. Yet the notion of rare earths as a China’s “trump card” should not be overplayed. China’s own reserves have fallen from 70% to less than 40% of global total due to over-extraction and rising domestic demand. China is now both the largest producer and one of the largest importers of rare earths. Some analysts predict that within a decade China could even become a net importer. Read More: Why China Can’t Win a Trade War There is also growing recognition within China that rare earth restrictions may push the U.S. and its allies to move faster to rebuild supply chains. The U.S., Australia, and Canada are already investing heavily in domestic mining and refinery. Japan and the E.U. are developing recycling and substitution technologies. This will chip away at Beijing’s advantage. Perhaps most importantly for Beijing, the overuse of export restrictions could reinforce perceptions of China as an unreliable supplier, undermining Beijing’s efforts to position itself as a force for stability in the global economy. None of the damage from this latest trade episode suggests that the U.S. and China can return to the easy optimism of past decades. But both sides would benefit from a clearer sense of limits. And there is still room to step back. The U.S. could delay implementing the most sweeping parts of the Affiliates Rule, which has already caused confusion and pushback. Beijing could slow the rollout of its new licensing system to prevent unnecessary supply shocks. Until then, the two sides will keep talking past each other, fluent in the language of rivalry but weak in the trust department.