Behind China’s Restriction on Rare Earths: A New Round of Great Power Game Under the Cold War

# Introduction

Author: @0xBenniee  

A tweet by Trump on the evening of October 11 plunged both the crypto market and U.S. stocks into panic. The futures market witnessed an unprecedented chain of liquidations within just a few hours, with the total scale reaching a record-high $19.2 billion.  

Why is Trump in such a hurry at this moment? Why does he want to reignite a new round of trade conflicts?  

To understand this, we must look back at the U.S. history over the past three decades and see how it has "rebooted its system" time and again amid crises.  

This article will examine four economic and war cycles to sort out how the U.S. has resolved internal crises through external wars, financial expansion, and industrial relocation. Based on this analysis, it will propose three possible trajectories for the future.  

## "Financial Assets and Crisis Indicators"  

First, let’s look at the comparison between two sets of key assets and gold:  

Copper/Gold (representing electricity and industrial activity) and Oil/Gold (representing energy and inflation expectations).  

The shaded areas marked in the charts correspond to the four major economic crises the U.S. has experienced over the past three decades.  

(Data Source: MacroMicro.me)  

It is not difficult to see from the two charts that both ratios have reached inflection points again within their historical ranges. While it is still uncertain whether this signals the arrival of a new round of systemic crisis, this signal is sufficient to indicate that the global financial cycle is entering a new critical point.  

## "Looking Back at Four Major Historical Turning Points: How the U.S. Responded and Resolved Crises"  

- **1990 Gulf War**: At that time, the U.S. economy was facing severe recession and inflationary pressures. Through the Gulf War, the U.S. government successfully diverted domestic economic contradictions, stabilized social confidence, and took the opportunity to gain control over Middle East oil supplies, stabilize energy prices, and further consolidate the petrodollar system and the U.S. dollar’s global hegemony.  

- **2001: China’s Accession to the World Trade Organization (WTO)**: Back then, the U.S. was lacking larger overseas markets and hoped to absorb excess production capacity through globalization by outsourcing manufacturing overseas. China’s accession opened up new export and investment channels for U.S. capital and provided a complete manufacturing system for the global industrial chain. Through globalization, the U.S. transferred its internal manufacturing pressures abroad, while China quickly became the "world’s factory" in this process, forming a deeply intertwined economic cycle with the U.S.  

- **2008 Subprime Mortgage Crisis**: Excessive household leverage triggered a collapse of the financial system, with the bankruptcy of Lehman Brothers serving as the catalyst. The U.S. restarted its economy through fiscal stimulus measures such as low interest rates and quantitative easing (QE), but much of the liquidity was released into the global market. Meanwhile, after the crisis, China launched a "4 trillion yuan" stimulus plan, increasing fiscal spending, prioritizing investment, and initiating a new growth cycle through large-scale infrastructure construction. This earned China the title of "infrastructure maniac" and gradually transformed household leverage into fiscal leverage at the national and local levels, taking over the responsibility of driving global growth.  

- **2020 COVID-19 Pandemic**: The U.S. economy came to a complete standstill. The Federal Reserve launched an unprecedented round of QE, leading to a rapid surge in national leverage and total debt exceeding historical highs. The collapse of Silicon Valley Bank exposed systemic risks, but Jerome Powell temporarily defused the crisis through extreme easing and liquidity injections. In the short term, the U.S. restarted its economy at the cost of inflation and debt, and once again transferred the crisis to the rest of the world through excessive money printing.  

## "Learning from History: What Does Trump Want Now?"  

Today, what Trump is pursuing is not just an economic recovery, but a new industrial revolution centered on technology.  

Faced with high debt, high inflation, manufacturing relocation overseas, and heavy fiscal pressure, the U.S. is in urgent need of a new narrative to reshape confidence and redirect capital flows.  

And "the skyrocketing development of technology" is exactly the answer he is trying to create, as well as a must-play card for his goal of "Make America Great Again."  

## "China-U.S. Game Between War and Debt"  

In the face of crises, the U.S. has always adhered to its traditional solution: prioritizing the transfer of contradictions outward; only when external transfer is impossible will it seek reconciliation domestically.  

From a historical perspective, the U.S. is one of the few countries in the world that has "prospered through war." Whether in World War I or World War II, the U.S. accumulated original wealth amid the wars of other countries, and achieved economic rebalancing through war-driven production expansion and U.S. dollar export.  

This logic continues to this day: when internal divisions intensify, inflation soars, and debt becomes overwhelming, the U.S. will seek an "external outlet" to reshape the global order through wars, trade wars, or technological revolutions.  

China’s approach, however, is precisely the opposite. China’s response is more like a fundamental structural adjustment aimed at addressing the root cause of problems. When external pressure rises, China does not choose to transfer the crisis; instead, it stabilizes the system through fiscal expansion, industrial upgrading, and internal deleveraging.  

Behind the tariff war, there is essentially a game over income distribution and economic resilience. Household leverage has nearly reached its limit, but there is still room for leverage at the national level.  

In contrast, the U.S. has almost exhausted its fiscal space. Its debt ceiling has long exceeded 100% of GDP, and frequent disputes between the two parties over debt increases have repeatedly led to government shutdowns. Any further borrowing will lay political costs for the next administration.  

Today, the U.S. is in urgent need of a new narrative to attract U.S. dollar inflows and rebuild trust. External wars and technological revolutions have thus become the most direct means.  

Yet the core of the technological revolution lies in energy and raw materials. And rare earths—the key materials supporting all of this—are controlled by China.  

In October 2025, China further expanded restrictions on more rare earth elements and related process equipment and technologies. Several additional rare earth elements (such as holmium, erbium, thulium, europium, ytterbium, etc.) were added to the restricted list, and more licensing requirements were imposed on the export of rare earth magnet manufacturing, recycling, processing equipment, and technologies. This means that the upstream of almost all high-performance magnetic materials and key military components requires China’s approval for export.  

It was the issuance of this regulation that enraged Trump. In his late-night tweet, he lashed out at China for "weaponizing resources," calling it a "direct threat to the U.S. technological system."  

China’s control over the rare earth industrial chain is equivalent to planting a "supply chain mine" at the bottom of the U.S. technological and military systems. This time, the U.S. wants to launch a local war, but China has chosen to address the root cause of the problem.  

China still has room for national leverage. Compared with the U.S.—where federal debt has exceeded or is close to 124% of GDP—once China no longer adheres rigidly to the exchange rate, there will be significant room to increase the RMB-denominated debt ceiling.  

In other words, the U.S. is borrowing money from the future, while China is buying time through structural adjustments.  

## "The Road Ahead: Three Possible Outcomes"  

### 1. U.S. Victory: Revitalizing the Country Through Technology, Extending the U.S. Dollar’s Lifespan  

Trump is betting on technology. If the U.S. can completely restructure the industrial chain in fields such as AI, semiconductors, aerospace, and military industry, and achieve internal circulation in high-end manufacturing, this technological revolution will be not just an economic recovery, but a "reconstruction of the U.S. dollar system."  

Technological breakthroughs will reattract global capital back to the U.S., driving a new round of asset expansion and industrial dividends. The U.S. dollar will once again become the anchor of global growth, and the technology sector of U.S. stocks will redefine the ceiling of valuation.  

This will be a victory achieved through innovation rather than war, and also the last "peace card" the U.S. can play to sustain its hegemony.  

### 2. U.S. Defeat: Collapse of U.S. Dollar Credibility, Rebirth of Gold  

If the technological revolution fails, and U.S. debt continues to expand while fiscal revenue stagnates, "U.S. dollar credibility" will become the biggest bubble.  

Once the debt crisis spreads, U.S. Treasuries will no longer be regarded as risk-free assets, and international capital will quickly seek alternative value anchors.  

Gold, silver, rare metals, and assets with inherent store-of-value functions will become the new core safe-haven assets.  

The collapse of the U.S. dollar system will not bring about the collapse of the world, but will make "credibility" return to real metals and resources. At that time, whether Bitcoin’s narrative as "digital gold" can still hold—only time will tell.  

### 3. China’s Rise: Reassessment of Global Financial Assets  

China has not chosen war or inflation; instead, it has chosen "time."  

As national leverage replaces household leverage, and fiscal tools and industrial policies gradually take over the driving force of growth, the RMB’s debt capacity and structural adjustments will unlock new financial potential.  

If China can stabilize the exchange rate, relax capital flows, and promote capital market reforms and state-owned enterprise dividend distributions, this will trigger a systemic reassessment of assets.  

Core assets in the financial market—high dividends, resources, and technology manufacturing chains—will be re-priced globally.  

This is another form of victory: not relying on war or money printing, but on structural resilience and the power of compound growth over time.  

At that point, it will once again be an era of unwavering optimism about China’s economy—an era that belongs to us.  

## "Conclusion"  

The cycle of economic cycles never stops. The U.S. dollar’s debt, the rebirth of gold, and the game between the RMB and other major currencies—all of these are just the prologue to a new order. History does not repeat itself simply, but humanity always wakes up at the same critical junctures.  

This time, we all stand at the crossroads of a new era.  

## Disclaimer  

The views expressed in this article are solely those of the author and do not constitute investment advice for this platform. This platform makes no warranty regarding the accuracy, completeness, originality, or timeliness of the information in the article, nor shall it be liable for any losses arising from the use of or reliance on the information contained herein.