But then there is another fear. If these colossal resource extraction specialists hold hands, there would be a historic concentration of market authority over minerals and metals (resources indispensable to modern civilisation) in the hands of a few, who could indirectly have an indispensable opinion in the global economy. And China, being the factory of the world, and because it requires these resources for its industrial engine, would erect the most impenetrable regulatory fortresses to maintain autonomy and global competitiveness.

“China’s antitrust regulator is likely to be concerned ⁠about a ‌combined entity’s concentration in copper production and marketing, as well as iron ore marketing. Beijing may also see an opportunity to force asset sales to friendly entities,” several analysts and lawyers told Reuters.

In fact, well before the Glencore talks were made public, Rio Tinto was exploring an asset-for-equity swap aimed at trimming the ⁠11% holding of its biggest shareholder, state-run Aluminium Corporation of China, known as Chinalco. Rio Tinto’s Simandou iron ore mine in Guinea and Oyu Tolgoi copper mine in Mongolia were reportedly among the assets of interest to Chinalco.

“To get the Glencore deal over the line, assets in Africa are especially likely sales candidates, as Latin America has become less accepting of Chinese investment. China will see this as an opportunity to squeeze out assets,” said Glyn Lawcock, an analyst at Barrenjoey in Sydney.

The Copper Market

This proposed megacorporation would own an overwhelming share of worldwide production across multiple strategic commodities.

Let’s take the copper market. The combined behemoth would control roughly 10% of global mine output, establishing dominance over a metal indispensable to electrical grids and decarbonisation efforts. Iron ore concentration would prove even more striking as the merged group would govern approximately 18% of seaborne iron ore commerce, the essential feedstock for steel manufacturing.

China consumes more copper and iron ore than any nation on Earth. Its regulators scrutinise with profound suspicion any supply consolidation that might grant producers excessive leverage over domestic purchasers. Beijing’s competition authorities have consistently demonstrated scepticism toward mining megamergers that concentrate bargaining power against Chinese industrial interests.

Investors and analysts also see the will to control future copper supply as the prime motivator behind the Glencore-Rio Tinto merger talks.

A premium of 15% to 30% to Glencore’s early January 2026 share price could get the deal done and avoid spurring Australian rival BHP bidding for the company, RBC mining analyst Ben Davis said, citing recent conversations with investors. The move will end up valuing Glencore at up to USD 87 billion.

“Securing copper – not creating near-term value – is the key rationale for the transaction,” Davis stressed.

Glencore’s market capitalisation is about USD 76 billion, while Rio is worth about USD 145 billion. A combined “GlenTinto” would leapfrog BHP as the world’s largest mining company by market value, while significantly boosting Rio Tinto’s long-term copper exposure at a time when electrification-driven demand growth is colliding with a thin project development pipeline across the globe. The deal, if pulled off in January 2026, will be a well-timed one, given the way copper prices set multiple records amid supply disruptions and US trade uncertainties, which are fuelling a sharp rally for base metals.

Rio, which expanded into lithium in 2025 with the USD 6.7 billion acquisition of Arcadium Lithium, expects commodities output to rise about 3% a year by 2030 as new assets such as Guinea’s Simandou iron ore mine and Mongolia’s Oyu Tolgoi copper complex start producing. At this juncture, Glencore’s copper assets will be the real prize for the British-Australian multinational mining company. The assets which Rio may end up acquiring include a 44% share in the Collahuasi copper mine in Chile.

“While Rio has got a lot right in recent years in developing Oyu Tolgoi and Simandou, the growth beyond this current phase is far less exciting with projects (including copper assets like Resolution in the US and Nuevo Cobre in Chile) either too small to make a difference or still in the development phase or stuck in courts,” Davis noted.

Historical Precedents Illuminate The Path

Previous consolidation attempts illuminate Chinese regulatory philosophy with instructive clarity. When BHP mounted its audacious bid for Rio Tinto in 2008, Chinese resistance figured prominently in the deal’s ultimate disintegration. More recently, in 2020, China’s State Administration for Market Regulation torpedoed Glencore’s proposed acquisition of coal assets from Rio Tinto. Officials cited grave concerns about excessive concentration in seaborne coking coal supply chains.

In fact, Glencore has landed in similar situations before. In 2013, Beijing forced the Swiss-based company to sell its stake in the Las Bambas copper mine in Peru, one of the world’s largest, to Chinese investors ‍for nearly USD 6 billion in exchange for the Xstrata takeover. As of January 2026, Glencore has also agreed to sell Chinese customers minimum quantities of copper concentrate at certain prices for just over seven years amid the Xi Jinping government’s growing discomfort over the fact that the Rio Tinto-Glencore joint venture will have too much power over the copper market.

These interventions telegraph that Chinese authorities will dissect the combination with microscopic intensity, particularly given this deal’s potentially seismic ramifications across multiple commodity ecosystems. In fact, as per Reuters, the regulators will also be examining a planned USD 53 billion copper-focused merger between Anglo American and Teck Resources, given the fact that copper assets are in even higher demand today, given the metal’s role in the global economy’s green transition and shift towards artificial intelligence (AI).

Divestment Calculus

To mollify regulatory anxieties, the merged corporation would likely sacrifice substantial holdings, especially in markets where the combined entity would wield disproportionate influence. Industry observers identify iron ore operations in Australia’s Pilbara region as prime divestment candidates. Both companies operate extensive facilities there that feed Chinese steel mills directly.

Copper assets might also face the chopping block, though this scenario presents greater complexity. The metal’s pivotal role in global energy transformation and the copper supply’s relatively dispersed character complicate matters. The merged entity might contend that maintaining integrated copper operations advances broader environmental objectives and energy security imperatives.

Additional divestment possibilities encompass coal holdings, where Glencore maintains considerable operations, plus various base metals or industrial minerals where the companies’ portfolios intersect substantially.

Notwithstanding regulatory obstacles, the merger’s strategic architecture remains intellectually compelling for both enterprises. The combination would unlock operational synergies, compress costs through enhanced scale economies, and position the unified entity to capitalise on surging demand for energy transition metals. The deal would simultaneously furnish the combined company with augmented financial resources to bankroll new mine development and processing infrastructure.

Glencore’s trading division, among the planet’s most sophisticated commodity trading operations, would infuse another critical dimension into Rio Tinto’s predominantly extraction-focused business paradigm. Integrating mining and trading capabilities could generate exceptional value through superior market intelligence and optimised production-sales coordination.

Geopolitical Reverberations

And it’s not just a Chinese thing. There will be even more exhaustive scrutiny in the European Union (EU), the United States and Australia as these countries have formidable watchdogs and antitrust enquiries. But the Chinese verdict remains the most important, as China is ultimately the major destination for mined minerals.

Regulatory outcomes could establish momentous precedents for subsequent mining industry consolidation. A successful transaction, even requiring significant asset sales, might embolden other miners to pursue ambitious combinations. Conversely, regulatory rejection could freeze M&A activity across the sector for years, perhaps decades.

Timing any merger attempt demands exquisite judgment. Current commodity market conditions, with numerous metal prices languishing amid economic uncertainties, might incline regulators toward efficiency-enhancing combinations. Alternatively, mounting concerns about supply security amid escalating geopolitical tensions could prompt authorities toward greater caution regarding strategic commodity supply chain concentration.

As Rio Tinto and Glencore navigate continuing discussions, both must traverse a labyrinthine regulatory landscape with surgical precision. Success demands more than identifying palatable asset divestitures. The companies must construct persuasive arguments demonstrating how their merger serves expansive interests in guaranteeing stable, sustainable commodity provision. This is not going to be an easy battle for these companies.

The post IF Insights: China braces for GlenTinto copper dominance appeared first on International Finance.

The recent defeat is reflected in the significant decline of US diplomatic expectations. Wendy Cutler, a former US trade negotiator, confirmed to the Wall Street Journal that current trade negotiations have entirely set aside structural matters.

The objective is no longer advancing the relationship through fundamental change but achieving mere de-escalation and stability. Uncle Sam’s strategy has devolved from demanding systemic change, such as forcing a shift to domestic consumption or ending industrial subsidies, to simply managing crisis stability, confirming that years of tariff warfare yielded nothing but tactical adjustments and an exhausted diplomatic corps.

The US trade war’s unintended primary achievement was proving that China could withstand external economic pressure. By lowering expectations from achieving profound structural reform to settling for simple relationship stabilisation, the United States has signalled to Beijing that its state-led economic model, driven by the Chinese Communist Party, is unassailable.

This undermines the US’ credibility in future negotiations globally, a geopolitical price that far outweighs any temporary trade concessions. The US deployed its greatest economic weapon, access to its immense market, to demand change.

When Beijing retaliated by weaponising its dominance over rare-earth metals and disrupting the US’ agricultural sector, the cost of sustained friction became politically prohibitive for the American system, forcing this abandonment of structural goals. This tactical surrender is a direct, quantifiable measure of the effectiveness of China’s counter-coercion tactics.

The decades-long faith in engagement, pursued through successive US administrations, was a profound political delusion, an act of intellectual self-comforting that ignored the clear warning signs.

The historical premise of this policy rested on the belief that drawing China into the global trading system, notably through its accession to the World Trade Organisation in 2001, would inevitably lead to political liberalisation.

That hope has been comprehensively dashed. The ensuing decades saw not political openness, but the reverse. Chinese leader Xi Jinping, who consolidated power in 2012, has systematically tightened his control over the domestic political system and civil society more broadly.

This failure was inherently ensured by Beijing’s rigid political identity. Evidence suggests that the Chinese Communist Party fundamentally rejects the idea that the rule of law should take precedence over the Party’s leadership role in governing the state. This stance creates significant obstacles to any transition toward a true, open market economy.

Furthermore, the failure of engagement was significantly exacerbated by the failure of global enforcement. The US and the international community failed to utilise the tools available under the WTO to hold China rigorously accountable for its commitments, providing Beijing the space to pivot sharply toward a state-centric, CCP-run economy.

This political tragedy confirms that the US supported China’s entry on terms that proved wholly ineffective in securing Beijing’s embrace of an open, market-oriented trade regime. China weaponised the benefits of global integration to strengthen its state apparatus and industrial planning. The policy of engagement was a Trojan horse that ceded geopolitical advantage and accelerated CCP power.

Predictable collapse of tariff warfare

The Donald Trump administration, armed with tariffs and rhetorical fury, thought its economic might could intimidate history and force a fundamental shift in Beijing’s economic DNA. They were tragically, predictably wrong. The flawed strategy sought to move China away from what was correctly identified as a mercantilist policy of subsidised manufacturing and export focus.

The mechanism was based purely on market mechanics, imagining that tariffs would squeeze exports and compel Beijing to initiate painful social reforms, specifically overhauling health and social welfare systems, which would allow China’s 1.4 billion consumers to spend more and save less. The idea was that by pressuring exports, China would be forced to find new sources of growth at home, boosting global consumption and shrinking its massive trade surplus.

This strategy failed catastrophically because it entirely ignored China’s ideological commitment to its state model. Oliver Melton, a director at Rhodium Group, states plainly that Washington has very little ability to influence China’s macroeconomic strategy because the two nations hold fundamentally different ideological understandings of what drives economic growth and development.

China’s commitment to manufacturing and industrial production as the wellspring of national prosperity is absolute. Beijing viewed the trade war not as a simple economic negotiation over market access, but as a severe test of national will and security.

The failure of tariffs to achieve structural change confirms that Beijing is willing to absorb immense short-term economic pain and dislocation to defend its foundational industrial state model, a resolve the US completely underestimated.

Why Beijing refuses to spend

The weak level of household consumption in China is a deliberate political choice essential for funding the industrial state apparatus. Analysis confirms that China’s long-term economic stability absolutely requires a transition to household consumption as its investment-led model yields diminishing returns. Even some Chinese officials grudgingly acknowledge that the country’s consumption is far too weak and express a desire for some rebalancing.

However, the necessary structural reforms are gargantuan, requiring a fiscal overhaul that Beijing views as politically unacceptable. Meaningfully boosting consumption requires structural reforms to address issues like the rural-urban divide, the precarious position of migrant workers, and the deep misallocation of capital currently controlled by state-owned enterprises and banks.

The total fiscal resources required to fund social infrastructure, public services, and ongoing social transfers needed for a durable shift would amount to tens of trillions of RMB, approximately 30% of China’s GDP.

Such a massive fiscal commitment is an existential threat to the powerful nexus of state-owned enterprises, local governments, and central planners that currently control the flow of capital. The efforts seen so far have been piecemeal, stymied by ideological attachment to industrial production and wariness of politically painful reforms in taxation, healthcare, and social welfare.

For Xi Jinping and the Chinese Communist Party, redistributing 30% of the nation’s capital to the populace to boost consumption is perceived as an act of weakness that would destabilise the existing political system and threaten the Party’s command over the economy, hence the resolute refusal to change the growth model.

Beijing’s response to the American tariff assault was immediate, disciplined, and ruthlessly strategic, a calibrated move that forced the United States onto the defensive and rapidly exposed the limitations of American economic coercion.

Rather than capitulating, Beijing retaliated with stiff countermeasures, using its leverage over critical supply chains and strategically targeting politically sensitive US sectors, such as halting purchases of soybeans to punish America’s agricultural ecosystem.

This counter-coercion was built upon decades of deliberate industrial policy aimed at securing dominance in strategic materials. China weaponised its near-monopoly position on rare-earth elements, critical minerals essential for defence, electric vehicles, advanced semiconductors, and green energy technology.

China established its leverage through decades of concerted industrial policy and now accounts for approximately 91% of global rare-earth refining. When the trade war heated up, Beijing imposed stringent export controls on these critical materials, establishing an economic weapon that allows it to inflict targeted pain directly on American companies reliant on these inputs.

The American assumption that high tariffs alone would secure surrender proved far less damaging than China’s targeted, chokepoint-based retaliation, cementing China as an economic peer rival capable of defying the world’s longstanding superpower.

The systematic failure of the United States to achieve its stated goals is laid bare by key economic metrics, which confirm the persistence of China’s export-driven imbalance and the scale of the necessary, yet politically impossible, consumption reforms.

Xi’s chokepoint strategy

Henry Farrell, a professor of international affairs, argues that the trade war taught Xi Jinping the necessity of reducing reliance on the United States in critical areas such as semiconductors, confirming that Washington’s pressure was entirely counterproductive.

In response, Beijing strategically hardened its system. China systematically identified perceived “chokepoints,” sectors where it was reliant on foreign inputs, and launched a determined, whole-of-nation strategy to achieve self-sufficiency, rapidly building up domestic industries, developing alternative sources for inputs, and carefully husbanding its strengths.

The ultimate geopolitical goal articulated by this strategy is not improved trade balance, but political autonomy. Beijing seeks to maximise its freedom to pursue its own national interests without the United States being capable of determining its destiny through technological or economic coercion. This shift elevates industrial policy from a matter of economic efficiency to a core mandate of national security and geopolitical warfare.

Beijing’s official policy response to American pressure, the “Dual Circulation Strategy,” is a fortress doctrine designed for resilience and siege, not for peace or global integration. The blueprint for China’s future was made clear in its latest five-year plan, which confirmed Beijing’s absolute intention to double down on this path. The plan reemphasised its commitment to technological self-sufficiency, pledging to pour more investment into advanced manufacturing and boosting exports.

The “Dual Circulation Strategy” aims to insulate the domestic market from external shocks by vertically integrating production and eliminating bottlenecks in technology and natural resources. This involves focusing heavily on the internal market while leveraging the Belt and Road Initiative to secure reliable external demand and open markets in the emerging world.

This inward pivot, born from the pressures of the trade war, is a powerful dual threat to the global economy. By aggressively seeking self-sufficiency in high-end inputs, China deliberately cuts off major high-tech exporters like the United States, Japan, and Germany.

Simultaneously, the external circulation component ensures China will use its growing geopolitical reach to export its industrial overcapacity and deflationary pressures globally, creating new and pervasive structural trade friction worldwide.

Controlling the global component chain

While Washington obsessed over tariffs and finished goods, Beijing executed a strategic masterstroke by weaving itself so deeply into the core machinery of global production that true decoupling became an impossibility. China has strategically shifted its focus from being merely the final assembler of finished products to dominating intermediate goods and core components.

Dinny McMahon, head of markets research at Trivium China, told the Wall Street Journal that the consequence is pervasive; virtually any manufactured goods purchased globally, no matter origin, now carries some exposure to Chinese supply chains.

This dominance is structural and non-replicable in the short term. China holds dominant positions in multiple critical electronic products and raw materials. Mainland China hosts over 50% of global manufacturing for Printed Circuit Boards (PCBs), the fundamental backbone of all electronics.

Furthermore, China’s chemical industry alone contributes over 40% of global chemical production, a critical input for countless industrial processes.

Experts confirm that relocating final assembly processes is relatively straightforward, but the real obstacle, the “difficult middle stages,” lies in replicating China’s established infrastructure and expertise in complex component production, such as metal moulding and speciality chemicals.

The US strategy fundamentally failed to comprehend that the centre of global manufacturing gravity had moved. China has successfully forced the world into a state of strategic interdependence where Beijing holds the most essential chokepoints, allowing it to overcome decoupling efforts and export restrictions by leveraging its deep local supply chains.

China is suffering from domestic economic malaise and is actively weaponising its internal crisis, exporting deflation and systemic instability to the world. The rampant, state-subsidised production in China continues to far outstrip weak domestic consumption, leading to menacing domestic deflationary pressures. China is an exceptional case, the first G20 economy to report a year-on-year decline in consumer prices since August 2021.

This crisis is now a global problem. China’s export prices are collapsing, pushing inflation rates down globally. Between April and December 2023, Chinese export prices fell by 6%. Crucially, prices for machinery and electrical equipment, inputs essential for Western industry and technology, dropped 8.4%.

This overproduction, particularly in sectors like steel, aluminium, and advanced clean energy technology, is now flooding global markets and aggressively suppressing prices. The systematic undercutting of global prices in key strategic future industries, such as electric vehicles and solar panels, is an effective extension of China’s mercantilist industrial policy.

This forces foreign firms into unhealthy, unsustainable competition, capturing global market share by systematically destroying the profitability of rival industries in advanced economies. This is economic warfare waged with weaponised low prices, supported by state funding, subsidies, and cheap financing.

Perhaps the most profound moral indictment of China’s rigid, export-focused system is its detrimental effect on the development pathways of poorer nations.

Eswar Prasad, a professor of trade policy, notes that China’s ballooning goods surplus and resolute refusal to rebalance its model actively stifles manufacturing in other countries.

This specifically targets poorer economies trying to nurture a domestic factory sector, as China refuses to cede significant ground in lower-value manufacturing, even as it achieves dominance in high-value goods like aircraft and chips.

The historical promise that China’s rise up the value chain would create growing markets for labour-intensive manufactured goods from other emerging markets has been systematically dashed. Developing economies are being crowded out of manufacturing by Chinese overcapacity, blocking their essential path up the value chain.

China increasingly competes head-on with these nations in the low-tech and mid-tech space. The consequence is a global South dilemma, where China remains primarily a source of supply, not a reliable source of demand, creating profound structural imbalances and mounting trade friction even with its supposed developing partners. Beijing must undertake aggressive reforms, including allowing the renminbi to strengthen and boosting imports, to ease the intense pressures these trade flows are creating.

The trade war was doomed before the first tariff was levied because Washington and Beijing are locked in a conflict between two mutually exclusive economic ideologies. The US insists on painful reforms toward consumption-led growth, but Beijing’s leadership reemphasises its absolute commitment to industry-led technological self-sufficiency and boosting exports. This is the unmovable object meeting the unstoppable force.

The structural reality is clear: without aggressive, politically traumatic reforms to restructure the economy, China’s growth trajectory will inevitably slow while trade friction with every trade partner, both in the North and the South, will increase dramatically.

The world must now prepare for a future defined by China’s chronic structural imbalances, a reality created by the failure of the United States to understand the ideological foundations of its rival. The quantitative evidence for China’s systematic export of its industrial surplus and deflationary pressure is overwhelming.

Necessity of a new strategy

The US trade war achieved nothing of its stated goals, confirming only the profound political and ideological resilience of China. The American effort resulted in the confirmation of China’s resolve, cementing its status as an unyielding peer rival fully capable of determining its own destiny.

Uncle Sam’s objective was inverted. Washington now accepts tactical de-escalation, having squandered years on a flawed, unilateral campaign that only taught Beijing how to harden its system and solidified its commitment to industry-led growth.

The comprehensive failure of unilateral American tariffs against a centrally controlled, cohesive state apparatus demands a multilateral reckoning. The only viable path forward in response to China’s entrenched industrial model and its resulting weaponised deflation requires coordinated, unified action. This unified front must encompass Europe, Japan, and other critical partners globally.

The strategy should go beyond simply applying tariffs. It must focus on systematically neutralising China’s leverage at critical points, countering the systemic instability caused by its enforced overcapacity, and offering alternative development paths for emerging economies that are currently being overwhelmed by Chinese overproduction.

This is the final verdict on the grand delusion, the profound political naïveté that defined decades of US-China engagement. The geopolitical tragedy is that China leveraged that era of hope to construct a state fully immune to American economic coercion. The trade war showed Xi Jinping how essential it is for China to reduce reliance on the US and develop economic weapons to strike back.

China, having successfully defied the world’s superpower on the matter of structural reform, now moves forward along an unchangeable path of technological autonomy and industrial dominance. The world must now adapt to China’s reality, a geopolitical shift that ensures escalating global friction and will redefine the structure of the 21st-century economy.

The post China’s defiance exposes US failures appeared first on International Finance.

Government policies and subsidies have effectively made China a leader in the global automotive industry and electric vehicles. Domestic automakers have met the production targets that the Communist government’s policy wanted to achieve, but a new headache has emerged.

The world’s second-largest economy’s auto industry is making more cars than the global market can absorb. The industry players are finding it increasingly difficult to make a profit.

China’s EV glut problem

Compared to the United States, Chinese electric vehicles start at less than $10,000, whereas the average price of an EV remains at $35,000.

Liuzhou, a Chinese city with a population of 21 million, has a showroom in a shopping mall offering special deals on new cars, including 50% off on locally made Audis and a seven-seater SUV for about $22,300, more than 60% below its sticker price. These cars are made by China’s FAW (First Automobile Works).

With so many cars in one place, these deals are possible. A company called Zcar, which informed Reuters about its business practice of buying in bulk from automakers and dealerships, is now offering customers the option of choosing from among 5,000 vehicles.

An industry survey released in August 2025 revealed that many manufacturers were struggling with excess inventory. As a result, they have been unable to generate additional revenue, leading dealers to lower prices. Some retailers have registered and insured unsold cars in bulk, a strategy that enables automakers to count these vehicles as sold and allows dealers to qualify for factory rebates and bonuses from manufacturers.

“Unwanted vehicles end up in the hands of grey-market traders like Zcar, which pop up in fire sales on TikTok-style social media sites. These cars are rebranded as used (even though the odometer says otherwise) and exported overseas, or some wind up in weedy car graveyards. According to many industry figures and analysts, these practices are signs of a market that is vastly oversupplied and at risk of a shakeout, as is seen in the Chinese property market and the solar industry,” Reuters reported.

China’s emphasis on boosting sales for job creation and growth comes at the cost of profitability and healthy competition. It makes local governments compete with each other for cheap land and subsidies for automakers. They make production and tax-revenue commitments, which fuel overcapacity across the country.

During an interaction with Reuters, Rupert Mitchell, an Australia-based macroeconomics commentator who previously worked at a Chinese EV startup, said, “When there is a directive from Beijing that this is a strategic industry, every provincial governor wants the car factory. They want to be in good shape with the party. Ultimately, what happens is that it makes the existing auto sector double down on investment.”

A review by Reuters of thousands of car-sales listings, hundreds of government documents, state-media reports, court filings, and consumer-complaint records, as well as interviews with over 20 industry players, including dealers, buyers, analysts and manufacturing executives, shows how oversupply is enfeebling China’s auto market even as the industry emerges as a world power.

Foreign rivals are lagging Chinese brands in delivering new models, but the same government policies that spurred explosive growth and innovation in automaking are causing lose-lose transactions throughout the domestic sales chain.

The industry and commerce ministries did not address these issues publicly, issues like pressures facing the sector, the potential for consolidation or the extent to which government policies promoted oversupply.

The experts state that these issues have wider implications for China’s economy. The country’s GDP accounts for around 10% of the auto industry and related services. Chinese policymakers have long waved off American and European concerns about overcapacity caused by cheap Chinese exports, but Chinese officials have pledged to cool price wars in electric vehicles and solar panels in recent months.

According to consultancy Gasgoo Automotive Research Institute, Chinese automakers have the ability to make twice the 27.5 million cars they produced in 2024. The issue is particularly severe in gasoline cars, where demand collapsed as Beijing promoted EVs, while the number of EV factories mushroomed as companies and local authorities jumped in.

Another consultancy, AlixPartners, estimates that only 15 of the 129 electric vehicle and hybrid brands in China will be financially sustainable by 2030. This price war is now in its third year. Allowing that to happen would mean allowing many automakers to fail, an outcome that some analysts say would risk mass layoffs and falling consumer spending, an outcome many Chinese officials have resisted.

Yuhan Zhang, principal economist at The Conference Board’s China Centre, said, “That leaves automakers and local governments locked in a downward spiral. They feed and reinforce one another, trapping the market in a vicious cycle.”

This is not only a problem for Chinese automakers. Foreign brands are losing market share, with Chinese car sales going to foreign brands in the first seven months of this year at 31%, down from 62% in 2020, according to the China Association of Automobile Manufacturers (CAAM).

European governments are concerned that affordable Chinese-made cars will undermine their domestic automotive industries. In contrast, the United States has effectively banned Chinese cars due to national security risks and allegations of unfair competition.

Attracting EV manufacturers

The origins of this market date back to the 1990s in Beijing, when national policymakers aimed to position China at the forefront of significant technological changes, particularly in the auto industry. This shift occurred as people began transitioning from internal combustion engines to electric vehicles.

In 2009, it bought out a programme to promote automakers who are producing electric vehicles and consumers purchasing these cars, by bringing billions of dollars in subsidies. As a result, the EVs had not caught on by 2017.

That year, government officials drafted a car-making policy blueprint, a 13,000-character document known as the “Medium-and Long-Term Development Plan for the Automotive Industry,” which laid out a target of 35 million vehicles produced annually by 2025, twice the American annual sales record.

Chinese authorities, who had been trying to rein in an overheated property sector, started to discourage excess investment. The automaking blueprint became an expedient second economic pillar for local governments that had relied on land sales and real-estate tax revenue.

The 2017 plan also fanned a rush by local authorities to court electric vehicle makers. In 2024, China almost reached the goal, building over 31 million, according to the China Association of Automobile Manufacturers (CAAM).

The competition has set a playbook across China. The local governments offer incentives to automakers, and expect production and tax-revenue goals in return. Also, automakers have often prioritised meeting those goals over turning a profit, and over time, local governments have kept manufacturers that might have gone under in other markets afloat.

The right automaker can also be a massively profitable bet. The county government in Changfeng, Anhui province, lured BYD in 2021 with inexpensive land, and in return, the county, which was once the main producer of traditional flatbread, received a mega-factory from the EV maker.

Experts say they have calculated from property-sales filings published by the Chinese government that over five years, BYD bought 8.3 square kilometres of land in Changfeng at an average price 40% below the average price paid by other buyers.

In 2023, the year after BYD began production in Changfeng, the county’s economic growth outpaced the national rate by 9.1 percentage points. It was 5.6 percentage points higher in 2024.

The Chinese smartphone maker Xiaomi started acquiring land in Beijing’s Yizhuang district for an electric vehicle factory in 2022, buying more than 206 soccer fields’ worth at an average price 22% below what others paid for industrial land, land-sales filings show.

Beijing mandated that the plant have a minimum annual revenue of 47 billion yuan, or about $6.6 billion, at full production. Xiaomi followed an open bidding process and did not receive discounts or incentives for the land, and it was the only bidder, according to tender information posted by Beijing’s municipal government.

In China, the Guangzhou officials published a policy document in June 2025. However, it stated that the city would aim to develop up to three makers of “new energy vehicles,” including fully electric cars and hybrids, to each produce 500,000 vehicles a year, while awarding up to 500 million yuan (about $70 million) a year to each automaker that built new production lines and made 100,000 vehicles in three years.

At least six other local governments between 2023 and 2025 issued policies to encourage automakers to expand output, policy documents show. Earlier this year, Chinese authorities began to raise the alarm about auto price wars, saying competition was unsustainable. In July, President Xi Jinping chided provincial officials, asking why every province was rushing to invest in a small number of technologies, including electric vehicles and artificial intelligence.

Automakers’ impossible growth

Excess capacity driving aggressive sales targets isn’t limited to China. General Motors, Ford and Chrysler had too many factories making too many cars in the early 2000s, and shut down more than a dozen plants in the United States. Pressure to meet sales targets and gain market share is higher in China, industry analysts and former executives say.

In recent years, the industry has started referring to this kind of competition as involution, a concept that describes self-destructive competition that rewards irregular practices.

Liang Linhe, the chairman of Sany Heavy Truck, one of China’s largest truck makers, said vehicle manufacturers are compelled to keep selling and producing, even at a loss, because this generates cash flow, which is essential to survival.

“It’s like riding a bicycle: As long as you keep pedalling, you might feel exhausted, but the bike stays upright,” Linhe said.

As losses mount, many carmakers are pedalling faster, leading some analysts to talk about a shakeout. In early 2025, EV brand Neta shut down operations after its parent filed for bankruptcy.

In 2024, Chinese tech company Baidu and automaker Geely laid off workers and restructured their joint venture, Ji Yue Auto, which was facing fierce competition.

Still, some say that an abrupt shock is unlikely. Consolidation could take years, and local governments would likely support struggling automakers, limiting the impact.

Michael Pettis, senior fellow at Carnegie China, said, “The problem of excess capacity in China is a systemic problem.”

The chief executive and co-founder of Chinese electric vehicle startup Xpeng, He Xiaopeng, said in 2023 that each automaker would have to sell three million cars a year by 2030 to stay alive, and only eight would survive by then. Xpeng sold 190,000 cars in 2024. A handful of large players are reaching or close to those volumes, and are well placed to be the survivors in a cull.

Geely said it aims to achieve five million vehicle sales per year by 2027, more than double the 2.2 million it sold last year. It is still unknown whether that target still applies. BYD, the industry leader, has set aggressive targets for 2025, but has slowed its expansion.

Its quarterly profit fell for the first time in more than three years in August, and it has internally adjusted its original plan to sell 5.5 million vehicles to at least 4.6 million. Most industry players are selling a fraction of that.

In 2024, as state-owned automakers like Changan, Dongfeng and FAW lagged their private peers in the EV race, the national regulator of government-owned firms announced that it wanted the state companies to expand market share and production, rather than profitability.

The automakers and the regulator, the State-owned Assets Supervision and Administration Commission, have not made any official statement regarding this so far. Changan stated that it aimed to quadruple sales of new-energy vehicles by 2030.

Will the market die?

Reuters reported that an influx of new cars has made it more challenging for dealers to turn a profit. This assessment comes from Chen Keyun, a retired dealer in Jiangsu province, and is supported by four other dealers.

Chen said the problems, such as dealers selling new cars at a loss and offloading them to traders who sell them on as zero-mileage “used” cars, are rooted in China’s “production-oriented” industrial model.

“Automakers have ignored the true level of demand but kept expanding capacity and increasing sales targets, forcing dealers to take more inventory,” he said.

A survey by the China Automobile Dealers Association reported that only 30% of dealers are profitable in August. The dealer groups in Henan, Sichuan provinces and the Yangtze River Delta publicly raised these issues and problems in June.

“We urge automakers to formulate sales guidance policies that align with market realities. If the sales channels collapse, the market will die!” the Henan Automobile Industry Chamber of Commerce said in an open letter to unspecified automakers.

Chen also stated that larger dealerships overpurchase inventory to hit automakers’ sales targets and obtain factory rebates.

“If you have managed to sell 16 out of the 20 units targeted for the month, what will you do with the remaining four units on the very last day of the month?” said one dealer in Jiangsu.

He went on to say that selling those cars even at fire-sale prices would mean qualifying for a bonus of around 80,000 yuan, or $11,200, and put him close to break-even.

Lang Xuehong, a deputy secretary-general of the CADA industry group, said dealers were selling at up to 20% below their cost, a level never before seen. In July 2025, EV brands Neta and Zeekr inflated sales in recent years, with Neta doing so for more than 60,000 cars.

The automakers had cars insured before they were sold so that the vehicles could be booked formally toward monthly sales targets. Neta’s parent, Hozon, which is in bankruptcy administration, could not be reached for comment.

Zeekr told Reuters in July that the cars had been insured with mandatory traffic insurance to ensure their safety while on display, and that they were legally new when sold to buyers.

Neta and Zeekr represent a widespread padding of sales figures across the industry, much of it involving zero-mileage used cars that have been insured and booked as sold, according to dealers and analysts.

Dealers and traders then export those cars as used, often with the blessing of local governments, or market them domestically through grey markets, as four regional dealer groups accused car companies of doing in June.

A livestream sales

In a rooftop parking lot at a mall in Chengdu, Wang Lihong rides a scooter with a selfie stick, shooting video for social media while livestreaming for Zcar, a grey-market trader that flips brand-new vehicles that dealers couldn’t sell. Hosts like Wang stream on platforms like Douyin, China’s TikTok.

Wang, who has 1.25 million followers, said recently that Zcar was Sichuan province’s largest seller of zero-mileage ‘used’ cars, available in March, June, September and December, “when dealers rush to meet the quarter or annual sales targets set by the automakers for cash rebates.”

The marketing director for Zcar, Zhou Yan, said that because it sources some vehicles directly from automakers in bulk, it can sell at deep discounts. Zhou also said that Zcar had acquired more than 3,000 Malibus in China from SAIC-GM, the American automaker’s Chinese joint-venture entity, and was selling them for under $14,000 apiece, down from a sticker price of $24,000.

GM told Reuters that “authorised dealers are the only official channels for our vehicle sales”, and that Zcar “isn’t a dealer affiliated in any way” with SAIC-GM.

Zcar said its Cheshi subsidiary bought 3,428 Malibus for wholesale distribution to dealers. Zcar also said it sells “popular, attention-getting models to draw people into our stores” and often sells at a loss.

The Malibus have not been reported in any previous trade. Audi did not have an opinion on what Zcar is doing, but said it does not condone grey-market trade, which it considers detrimental to the long-term value of its vehicles.

China’s auto industry hit a record in 2024, producing over 31 million vehicles as NEV production surged past 12 million. But too much capacity and excess inventory are creating real risks. The rapid growth that was once praised now threatens long-term stability, as fierce competition and price cuts could undercut profits for many automakers. Without better coordination, China’s car boom could turn into a costly overhang for companies and the economy alike.

The post China’s auto industry faces scrutiny appeared first on International Finance.

President Donald Trump, during his visit to Kuala Lumpur to attend a summit of the Association of Southeast Asian Nations (ASEAN), signed reciprocal trade deals with his Malaysian and Cambodian counterparts, apart from sealing a framework trade pact with Thailand that will see the countries work to address tariff and non-tariff barriers.

According to joint statements released by the White House, the United States will maintain a tariff rate of 19% on exports from all three countries under the deals, with the levy to be reduced to zero for some goods. Washington also announced a similar framework deal with Vietnam, which has levied a tariff rate of 20% on its exports to the United States.

The Southeast Asian nation, which recorded a trade surplus of USD 123 billion with the world’s largest economy in 2024, has pledged to vastly boost its purchases of American products to reduce the trade gap between the two countries.

Under the separate deals signed with Thailand and Malaysia, the Trump administration will seek cooperation to diversify critical minerals supply chains amid competing efforts from Beijing in the rapidly growing sector. The Xi Jinping administration is in talks with Kuala Lumpur on rare earths processing, with Malaysian sovereign wealth fund Khazanah Nasional expected to partner with a Chinese firm to build a refinery in Malaysia.

China, the world’s top miner and processor of rare earths, has imposed increasingly stringent export controls on its refining technology, sending global manufacturers scrambling to secure alternative supplies for critical minerals used widely in semiconductor chips, electric vehicles, and military equipment.

Malaysia, which has an estimated 16.1 million tonnes of rare earth deposits, has banned the export of raw rare earths to prevent the loss of resources as it looks to develop its downstream sector. However, Washington will get an exemption here, as Kuala Lumpur will now refrain from banning or imposing quotas on exports to the US of critical minerals.

While under the deals the four Southeast Asian countries pledged to remove trade barriers and provide preferential market access to various American goods, the commitments also covered areas like digital trade, services, and investments, as well as promises by the Southeast Asian countries to protect labour rights and strengthen environmental protections.

Thailand, Malaysia, and Vietnam agreed to accept vehicles built to US motor vehicle safety and emissions standards. Talking about Thailand, it would eliminate tariff barriers on approximately 99% of goods and relax foreign ownership restrictions for US investment in its telecommunications sector.

Both sides also took note of several forthcoming commercial deals between Thai and American companies, including the purchases of agricultural products such as feed corn and soybean meal worth an estimated USD 2.6 billion per year.

Thailand has also committed to purchases of 80 US-made aircraft totalling USD 18.8 billion and energy goods, including liquefied natural gas and crude oil, of around USD 5.4 billion annually.

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Chinese automakers like BYD, NIO, and Xpeng have leveraged this massive home market to build global export businesses. As one analysis notes, China went “from a net car importer as recently as 2022” to a major manufacturer and exporter of finished vehicles within a few years. This has unleashed a wave of affordable, feature-packed Chinese electric vehicles across global markets, from Southeast Asia and Latin America to Europe, bringing significant economic, political, and environmental consequences.

Economically, China’s low-cost EVs are squeezing Western carmakers and forcing new trade debates. Geopolitically, Chinese dominance of batteries and supply chains creates new dependencies and potential leverage. From a climate perspective, we must ask whether the Chinese EV boom helps or hinders global sustainability. International Finance will unpack each dimension, drawing on industry data and expert commentary.

Cheap cars

Chinese EVs have hit international markets with a price shock. Models that cost the equivalent of $7000–$10000 in China can still undercut many rivals abroad, even if marked up for profit. In fact, BYD often sells its cars for much more in Europe than in China, sometimes double the price, but even those export prices are highly competitive.

The sheer scale and breakneck speed of China’s electric vehicle rollout have caught Western executives off guard. Ford boss Jim Farley, after touring China, warned that Beijing’s carmakers now pose an “existential threat” to Western incumbents. Mercedes CEO Ola Källenius described the competition as a “Darwinistic price war” that could wipe out many current players. In short, Chinese EV makers are no longer content to play catch-up; they’re sprinting into new markets.

These concerns are grounded in reality. According to the International Energy Agency (IEA), China’s share of global electric vehicle production and exports has significantly increased. In 2024, China manufactured over 70% of all the world’s EVs, and Chinese brands represented 40% of global EV exports, totalling 1.25 million cars. Alarmed by this surge, the European Union and the United States have initiated investigations and threatened to impose tariffs.

As EU Commission President Ursula von der Leyen recently put it, global markets have been “flooded with cheaper electric cars” from China, prompting a probe into possible unfair subsidies. The EU has proposed steep tariffs, ranging from 40% to 50%, on Chinese electric vehicles in an effort to level the playing field. Similarly, Washington is pushing back with EV-specific tariff legislation and “China-free” content requirements embedded in the Inflation Reduction Act, all aimed at curbing imports.

Western carmakers are racing to adapt, some slashing prices and pouring money into next-gen EV technology, while others hedge their bets by shifting production strategies. For example, BMW has announced a new plant in South Africa to serve African and European markets, and Ford plans to build EVs in Mexico rather than rely on Chinese imports.

Industry analysts note that Chinese brands have deliberately kept their early export prices high to build profit and brand equity, so they have room to slash prices in the future if needed.

As Ben Townsend of Thatcham Research observes, Chinese EV firms “aren’t looking to undercut” for now, but have the financial flexibility to do so. In a price-sensitive global market, that is a chilling prospect for established makers.

Chinese models are also stepping up in quality and features. A recent press study found BYD outperforming even Tesla in Europe. In April 2025, BYD’s sales jumped 359% year-onyear, overtaking Tesla (which fell 49%) in European registrations.

JATO Dynamics’ analyst Felipe Munoz called this a “watershed moment.” Tesla had long dominated Europe’s EV scene, but BYD, which only entered Europe in late 2022, is quickly catching up.

In fact, the once-derided notion of “cheap Chinese knockoffs” has faded. Chinese EVs now boast competitive range and technology. As one source notes, Chinese cars “are no longer knockoffs; they’re a serious threat with competitive range, features, and price.” Innovations like BYD’s new Blade Battery, safer, energy-dense, and lower-cost, show Chinese firms pushing technical boundaries as well.

Former Volkswagen CEO Herbert Diess warned on German TV in late 2024 that Chinese manufacturers are struggling, especially in terms of profit, and urged Europe not to concede defeat. Diess noted that Chinese EV makers, aside from BYD, “are burning through their capital” and are still unprofitable.

In practice, Chinese strategies seem mixed: building global sales and brands but not profitably so far. Nevertheless, governments see plenty of cause for alarm, and trade disputes are already brewing. The European Union and United States may well increase tariffs and non-tariff barriers, and automakers are lobbying hard for protection.

Chinese EVs have become massively cheaper and more advanced, grabbing market share worldwide. Western automakers now face a cutthroat price war, prompting protective responses such as tariffs and investigations, and a push to innovate. Analysts warn Europe and the US risk losing their lead unless they act aggressively.

Geopolitical leverage

China’s EV rise isn’t just an economic story; it’s also a geopolitical one. The world’s shift to electric mobility could wind up making many countries dependent on Chinese batteries, parts, and technology, giving Beijing new influence. At the heart of this is China’s stranglehold on battery supply chains. Chinese firms control roughly 70% of the global EV battery market.

CATL (Contemporary Amperex) alone has about a 37% share, and BYD around 17%. These companies supply virtually all the major automakers, including Tesla, Ford, and VW. In raw materials, China already dominates the mining, refining, and processing of critical minerals.

A US analysis notes that China intentionally poured some $100 billion into subsidies and investments over the past decade to lock in global lithium refining capacity, then even dumped excess product abroad to squeeze out rivals. China similarly cornered cobalt, nickel, graphite, and other key EV inputs.

Why does this matter? As one logistics analyst warned, “He who controls the supply chain controls the battlefield, economic or otherwise.”

In practical terms, major Chinese control of EV supply chains means that even if Western governments buy cars from other brands, they are still tied to China for batteries and materials.

This creates leverage. For example, Chinese companies like CATL already have plants overseas, and Beijing could, in theory, restrict exports or raise prices if it wanted to gain a political advantage, as it has done in the past with rare earths. Indeed, CATL has already drawn scrutiny as a national security concern. In January 2024, the United States labelled CATL a “Chinese military company” (an action CATL denies), reflecting Washington’s unease about Chinese firms’ role in key technologies.

Some analysts openly warn of national security risks. A recent policy brief argues that US dependence on Chinese battery and mineral supply is a direct vulnerability, and disrupting China’s supply could “cripple the US EV sector” as badly as cutting off critical weapons components. The Council on Strategic Risks notes that “the US dependence on China for critical minerals and battery supply chains represents a national security risk.”

It points out that China controls a substantial share of the entire value chain, from mining through final battery production. In response, governments are trying to diversify. The US is funding domestic battery projects and sourcing raw materials from allies, while Europe is pushing partners like Indonesia and Africa to develop their own supply chains.

Beijing is actively building EV manufacturing abroad to hedge against potential trade barriers and embed Chinese tech overseas. BYD’s huge Brazil plant, with assembly lines and battery production, is a case in point.

NIO and Xpeng are selling in Europe, and forming joint ventures to sidestep tariffs. The IEA notes that as Chinese exports face new tariffs in places like Brazil and Thailand, manufacturers have been frontloading shipments and seeking alternative markets.

Still, Chinese auto factories abroad remain a small share, which is around 5% of EV sales in emerging markets, and rising. For now, most of the global EV fleet still depends on Chinese-made parts.

The leverage shows up in politics. In 2024, Brazil imposed tariffs on electric vehicles to shield its emerging domestic industry, prompting China to delay shipments, while European capitals faced mounting pressure to follow suit.

Germany and France have considered “resilience” criteria for EV subsidies, making Chinese models less eligible, and the EU imposed antidumping duties of up to 38% on some Chinese EV brands.

Even in China itself, leaders talk openly about EVs as a geopolitical tool. At Davos 2025, CATL co-founder Pan Jian stressed that “it’s not going to be a one-country effort,” implying China intends to be the EV hub for the world. Experts warn this is a strategic vulnerability for the West. In response, governments are initiating new trade defences and subsidies to reshore or diversify their EV supply chains, but China’s first-mover advantage remains formidable.

Green dreams or dirty details?

On the upside, there’s no doubt that China’s EV fleet has cut fuel use. China is now the world’s largest EV market by far, so every Chinese EV on the road replaces one fossil-burning car.

According to the IEA, EV sales have driven China’s overall car market to grow, thanks to the EV segment, even as conventional car sales slump.

By enabling millions of drivers to switch off oil, China’s EV push can significantly reduce carbon emissions if the cars are charged from clean sources. The Chinese government is also rolling out renewables aggressively. Wind and solar capacity in China is booming, which will lower the carbon intensity of electric driving over time.

And Chinese manufacturers are adopting greener technologies. For example, CATL touts new battery chemistries and recycling plans to reduce waste. BYD and others are setting emissions targets for their factories. BYD even reports that its customers’ use of its EVs has saved 2.4 million tonnes of CO2, equivalent to planting 100 million trees.

But the current picture raises concerns. First, building EVs is carbon and energy-intensive. Producing the heavy batteries emits substantial CO2. One analysis finds a typical EV’s manufacturing embedded carbon is about 8.8 tonnes of CO2 (43% of that from the battery alone), compared to roughly 5.6 tonnes for a conventional car. In China, this matters especially because much industrial power still comes from coal.

Indeed, a 2024 lifecycle study of Chinese vehicles found that battery EVs in China emit only about 11.8% less CO2 than similar petrol cars, a modest gain, while they increase emissions of sulphur dioxide and fine particulates (SO2 up by 10%, PM2.5 up by 20%) due to coal-fired power and heavier vehicles.

In cold northern regions of China, EVs can even have higher lifecycle carbon intensity than ICE cars, because heating and coal use spike. In short, the climate benefit in China today is smaller than expected, and local air quality gains are uneven.

There are other environmental costs also. EVs are heavier and wear out tyres faster, generating particulate pollution. Studies estimate EV tyre wear currently spews millions of tonnes of microplastics per year, worse than on lighter cars. And then there are raw materials.

The mining of lithium, cobalt, and nickel for batteries often has serious environmental impacts. For instance, investigators once halted lithium mining in Yichun, China, after finding toxic pollutants in local water supplies.

Chinese companies have been criticised for labour and environmental abuses in mining projects overseas. Such issues have prompted some NGOs to argue that cheap Chinese EVs can’t be considered fully green unless their entire supply chain cleans up.

Moreover, electricity matters. An international study published in April 2025 warned that EV adoption by itself will not cut CO2 unless power grids decarbonise. In countries still reliant on coal, such as China, India, and even parts of Europe, charging an EV can produce more CO2 at the power plant than a fuel-efficient petrol car would at the tailpipe.

The University of Auckland study found that higher EV uptake often correlates with higher national CO2 emissions when grids are dirty. For China, this means the full climate payoff of its EV fleet will only come as coal plants retire and renewables expand.

The Chinese government is aware of these issues. In 2025, Beijing tightened battery safety regulations, not directly for emissions, but indicating higher production standards. It is also gradually redirecting industry toward greener factories under its “dual carbon” goals, which target peak emissions by 2030 and neutrality by 2060.

Some Chinese automakers are pushing carbon-neutral manufacturing. BYD has pledged to cut carbon intensity by 50% by 2030, and CATL claims to develop next-generation ultra-low carbon batteries. However, critics say that for now, Chinese regulators still favour rapid growth over strict environmental oversight, and that cheap pricing sometimes comes from cutting corners in sustainability.

China’s electric car revolution is already well underway, reshaping markets and politics worldwide. For consumers, it means more affordable EV options and faster innovation. For automakers, it means intense new competition and the imperative to adapt. For governments, it means balancing the climate benefits of faster electrification against the strategic risks of import dependence.

European and American industries are mobilising, building their own gigafactories, tightening supply chains, and exploring alliances. For example, the US and EU recently unveiled a joint plan to strengthen non-Chinese EV supply.

Meanwhile, Chinese firms are expanding overseas, betting that scale and state backing will eventually let them dominate. As VW’s Herbert Diess put it, “the automotive landscape…is still open for a second round.”

But he also warned that China’s domestic EV scene is a brutal, capital-burning contest, suggesting that not all Chinese newcomers will survive. The same could be said for the auto industry worldwide, as this is a round in which only the strongest, and perhaps luckiest, will be left standing.

What’s clear is that affordable Chinese EVs won’t disappear quietly. Their presence will continue to pressure prices and profits, shaping how the transition to electric transport unfolds. They could accelerate global decarbonisation by making EVs truly mass-market, or they could undercut environmental standards if shortcuts are taken. Vigilance is required because trade policies will need to evolve, supply chains may need safeguarding, and environmental regulations must catch up.

China’s EV surge is both a breakthrough and a challenge. It has sped up the global switch from oil to electrons, which is a win for climate goals, but it has also introduced new security and sustainability questions. Navigating this moment demands smart policy and industry strategy on all sides.

As one commentator puts it, China’s EVs show what careful long-term industrial planning can achieve, a lesson the West will not soon forget.

The post China’s EV surge shakes the world appeared first on International Finance.

In November 2024 at the Rio G20, Prime Minister Keir Starmer became the first British leader to meet President Xi Jinping since 2018, pledging a “consistent, durable, respectful” partnership.

This rebuff of the previous government’s frosty stance signals Labour’s intention to steady Britain’s China policy. In Labour’s telling, the Conservatives’ 14 years of “inconsistency” left UK-China relations badly in need of a “long-term and strategic approach.”

Under Starmer’s “pragmatic” vision, Britain will cooperate with China on trade and green energy where interests align, but still “compete” economically and “challenge” Beijing on security and human rights where necessary.

From golden era to deep freeze

To grasp Labour’s change in approach, it’s important to remember the fluctuations in Britain’s China policy. In the early 2010s, Prime Minister David Cameron promoted a “Golden Era” of engagement with China. He sought Chinese investment and famously invited Xi Jinping for a state visit, even sharing a photo while enjoying a pint of ale.

Back then, London gambled that supporting China’s economic rise would boost UK business. But this “mercurialist opportunism” proved short-lived. By the late 2010s, Britain had grown alarmed at Beijing’s hardline turn, which included the clampdown on Hong Kong dissidents, abuse of Uyghurs in Xinjiang, and aggressive actions in the South China Sea that alarmed parliament.

Successive Conservative prime ministers stiffened their rhetoric. Boris Johnson and Liz Truss called China a strategic threat, and the UK banned Huawei from its 5G networks. In Sunak’s 2021 Integrated Review, Beijing was labelled an “epoch-defining systemic challenge” and “the greatest state-based threat to our economic security.”

Labour’s last time in government, from Tony Blair to Gordon Brown (1997– 2010), was primarily characterised by a pro-engagement approach. New Labour viewed China in terms of trade and diplomacy, exemplified by the handover of Hong Kong to China in 1997 and the support for large Chinese-funded projects, such as Thames Water. However, even during that era, Labour governments understood the importance of addressing human rights issues with Beijing, albeit behind the scenes.

Over the past three decades, UK policy has swung like a pendulum— alternating between friendly engagement and investment under Blair and Cameron, and adversarial rhetoric framing China as a threat under Sunak.

Labour and Conservative critics alike contend that this policy pendulum has bred confusion. In its manifesto, Labour condemned 14 years of what it called “damaging Conservative inconsistency” on China, pledging instead to bring clarity, strategy, and a steady hand.

Labour’s new China policy

Upon taking office in July 2024, Starmer’s government pledged a “full audit” of UK–China relations, which they described as an in-depth review covering everything from trade and investment to security and supply chains. The audit (still ongoing) is meant to define a coherent China strategy, reversing what Labour sees as years of flip-flopping.

Officially, the new stance is straightforward, emphasising the need to cooperate wherever possible, compete where necessary, and challenge when required. In practice, ministers have begun outreach. Foreign Secretary David Lammy, in October 2024, made the first UK ministerial trip to Beijing in six years, promising to find “pragmatic solutions” and praising the “vast scope of mutually beneficial economic cooperation.”

Chancellor Rachel Reeves likewise flew to Beijing as her first overseas trip of 2025, announcing deals she estimated would add £600 million to the British economy over five years. Business Secretary Jonathan Reynolds has signalled his eagerness to revive long-frozen trade talks (the JETCO and Economic-Financial Dialogue) with China.

Starmer himself has adopted a moderately upbeat language. At the Rio summit, he said the UK and China are “both global players, both permanent members of the United Nations Security Council,” and promised “serious, pragmatic discussions” with Xi on trade, the economy, climate, science and more.

He emphasised making relations “consistent, durable” to avoid last-minute surprises. Labour spokesmen also stress that Britain will remain a “predictable, consistent sovereign actor committed to the rule of law,” even as it deepens dialogue with Beijing.

Yet critics note that a debate still rages within government. Some, notably Treasury ministers like Reeves, advocate for closer ties to spur growth, while security hardliners—known as “securocrats” in Whitehall lingo—urge caution. The delayed and scaled-down audit report, which is now expected to be released only in part this spring, reflects these underlying tensions.

Labour argues that by formally engaging China, it can speak more candidly on tough issues, while human rights groups worry the balance is tipping too far toward accommodation. As one analysis put it, Labour’s audit risks becoming “little more than a postmortem,” with “cooperate” the only surviving policy pillar.

So far, Starmer has talked of a “strong UK–China relationship” (to echo Cameron’s phrase), but also promised a “strategic and long-term” partnership that upholds British interests and values.

Economic imperatives

At the heart of Labour’s outreach is economics. Britain’s economy is under pressure, with sluggish growth, high borrowing costs, and post-Brexit trade challenges, while China continues to be the world’s second-largest market. The Starmer government sees Chinese trade and investment as too big to ignore. Indeed, China has already poured more into the UK economy (some £68.5 billion since 2000) than it has into any other European country.

London wants more of that money, especially in sectors like clean energy, advanced manufacturing and financial services. Reeves and Reynolds have hinted that even state-backed Chinese investment could be welcome if it helps jobs and innovation, provided it doesn’t compromise national security.

British businesses are drawn to China because it represents a vast and promising customer base. Labour points out that re-engaging could boost exports of cars, machinery, financial services and other UK strengths. For example, Chinese carmakers are expanding in Britain and could deepen ties.

The government is exploring fresh trade agreements and supply chain partnerships, and even sectoral deals to open up markets for British producers. Reeves’s recent visit aimed to “concrete” deals worth hundreds of millions, underscoring the growth argument.

Global supply chains also play a role. Many British industries rely on parts and technology from China, so a frigid relationship risks disruptions and higher costs. Labour argues that engagement lets the UK push for more “resilient” supply chains, rather than pushing China-driven manufacturing onto China’s rivals.

Ministers aim to rebuild dialogue, including efforts to revive the long-dormant UK–China Joint Economic Commission, to avoid a damaging trade war and gain leverage to shape rules on tech transfer and subsidies.

That said, economists caution that the bonanza may be overstated. After years of intense strategic rivalry, Chinese firms have grown wary of investing in the UK. An analyst notes that Chinese investment into Europe plunged to its lowest level since 2010 in 2023, and Beijing’s high domestic savings mean it may not need foreign help.

Indeed, Foreign Policy recently warned that “China is simply unlikely to invest much in Britain,” despite London’s olive branch, given Beijing’s concerns and tighter scrutiny from allies. Still, Labour’s message is that even a modest uptick in trade could help a struggling British economy, and that hedging against global risks is worth it.

Political calculations

Labour’s China policy is as much about politics as economics. Domestically, delivering growth and jobs is Starmer’s top priority; success in attracting investment could neutralise charges that Labour is weak on China or misguided about rights.

By contrast, resuming trade talks enables Labour to assert that it is standing up for British businesses, a crucial move if economic growth falls short. In this light, Reeves’s £600m deal was touted as a vindication of “pragmatic engagement” with China.

Globally, Labour may see reengagement as a way to burnish Britain’s influence. As the UK advances its post-Brexit ambitions in Asia, including the Indo-Pacific “tilt,” CPTPP negotiations, and deeper ties with India, Australia, and others, maintaining influence with China could prove to be a valuable diplomatic asset.

London hopes to secure a seat at the table on major global issues by opening channels on climate change, AI, and development, which ministers often describe as areas more conducive to cooperation. Some strategists also argue that a neutral UK with friends on both sides could moderate great-power competition; Starmer’s team talks of avoiding Washington’s trade war with China in favour of multilateral solutions.

Electorally, Labour may calculate that the British public cares more about economic well-being than China’s internal politics. Polls suggest most voters are not narrowly fixated on Beijing; they want cheaper goods and more jobs. Engaging China can therefore be framed as patriotic pragmatism, involving the use of every available tool to grow the economy while still rejecting unfair practices. By contrast, opposing all Chinese engagement might be framed as ceding British wealth to the likes of France or Germany, a tough sell to voters amid cost-of-living pressures.

However, Labour must tread carefully. Critics, particularly on the right, paint any rapprochement as weakness. After Starmer’s Xi meeting, some commentators warned it would “strain UK–US relations” and signal submissiveness, since China was arresting Hong Kong protesters at the same time.

Some MPs are sceptical that China will respond in kind; reports suggest even Chinese state media has doubted Britain’s sincerity, wondering if London could be “fair” to Beijing. Still, by acknowledging shared global responsibilities (multilateralism, climate, stability), Labour aims to justify its approach as safeguarding UK interests in a multipolar world.

Security and ethical concerns

No discussion of China can ignore deep security and human-rights fears. Labour publicly promises to “stand with” Hong Kong’s exiles in the UK and safeguard British values.

In practice, ministers say they will “challenge where we must,” which means Beijing can expect blunt criticism over Hong Kong’s national-security law, abuses in Xinjiang, and its support for Russia. For example, after Reeves’s China trip, she pointedly raised the cases of Hong Kong dissidents and China’s role in the Ukraine War. Foreign Secretary Lammy similarly told Wang Yi that Xinjiang and Hong Kong must be discussed even if “viewpoints diverge.”

On security, Labour faces pressure to continue Conservative-era safeguards. London has already used its 2021 National Security and Investment Act to block or scrutinise Chinese takeovers in tech (like the semiconductor plants). Ministers are now considering whether to blacklist parts of the Chinese state under a new Foreign Influence Registration Scheme, and have installed a National Protective Security Agency to help businesses resist espionage.

In other words, trade with China is being opened only to a limited extent, as deep tech, telecoms, and critical infrastructure will remain off-limits. Even within Labour’s pro-business wing, there’s recognition that some sectors must be kept secure.

The ethical dimension is thornier. Starmer’s government avoids provocative gestures, such as refraining from formally declaring Xinjiang a genocide despite pressure from some MPs, but maintains that it will not turn a blind eye to abuses. Labour says re-engagement is precisely a tool to gain leverage on sensitive issues.

A recent House of Lords briefing notes that the new Foreign Office approach is described as “cautious cooperation and challenge,” involving collaboration with China on trade and green energy while consistently raising concerns about human rights.

In his speeches, Starmer has stated that he intends to match China’s candour, reflecting Xi’s call for “tough-minded honesty” in discussions about global power dynamics. Whether Beijing will accept British criticism of, say, Xinjiang or Hong Kong in return for access to markets is uncertain.

Britain also must guard against covert threats. A series of spy scandals, ranging from a Chinese agent in Parliament to suspected cyber-attacks on the Ministry of Defence, has intensified concern in Whitehall. Labour diplomats argue that engaging China on economic fronts could facilitate intelligence sharing on cyber issues or counter-espionage. However, critics warn that the opposite may occur, with relaxed ties potentially offering Beijing more channels to influence UK public life.

Some advocacy groups drew tens of thousands to protest a plan for a new “mega-embassy” for China in London, warning it could become a hub for surveillance or propaganda. In sum, Labour’s China policy insists it will protect sovereignty and values even while trading, but it remains to be seen how robustly that line will be defended.

A high-stakes gamble

Labour’s China strategy is a high-stakes bet, with potential upsides but serious pitfalls. On the reward side, even small wins could matter. Smoother UK-China trade may lower costs for British consumers and boost exporters. Chinese investment in infrastructure or tech could fill funding gaps the Treasury can’t.

More engagement also gives the UK more insight into Beijing’s thinking on Taiwan or North Korea, possibly giving London influence in crisis moments. Business lobbies generally support the outreach, arguing that isolation from Asia’s largest economy would be more harmful.

However, downsides loom large. Many experts warn that China will not rush to invest in Britain because the economy is relatively small, now outside the EU single market, and Beijing has domestic priorities. Foreign Policy bluntly noted that “China is simply unlikely to invest much in Britain,” pointing out that Chinese FDI in Europe is now at near-record lows.

There’s also the risk of damage to alliances, as a too-cosy approach might upset Washington and Canberra and could erode moral credibility on rights. Labour’s critics fret that investors back home or overseas could shun the UK if they fear a security laxity. For instance, China could learn where the UK’s vulnerabilities lie.

On the domestic front, the government could face a political backlash if any China-linked project goes awry. For example, this occurred with British Steel’s Chinese ownership. Similarly, Starmer could be criticised if he appears to endorse autocracy. The recent spat over Jingye Steel, where officials alternately threatened and then courted the Chinese owner of British Steel, shows how quickly the needle can swing.

Labour’s leaders insist that difficult issues like Hong Kong will not be swept under the rug, but human rights groups are already accusing Starmer of softpedalling on genocide concerns. Any perception of a U-turn on values could dent the party’s image among voters who prioritise Britain’s global leadership on democracy.

Finally, there is strategic risk. If Beijing fails to deliver the hoped-for gains, such as investment, trade deals, or support on world issues, then Labour will have little to show for letting relations warm. And if the United States increases its pressure, such as by dragging the United Kingdom into a tariff war or encouraging allies to reject Huawei in 6G technology, Britain may find itself squeezed. The rewards may be uneven, while the risks affect national security and alliances.

Labour’s China outreach marks a significant departure from the recent freeze in UK policy. Framing it as sober realpolitik, Starmer’s government has explicitly pitched a middle way between Cameron-era naivety and Sunak-era confrontation.

The new approach rests on compartmentalising economics from geopolitics, aiming to welcome Chinese money and trade deals while maintaining strong national security and keeping human rights on the agenda. This balanced posture, described as “cooperate, compete and challenge,” has support in business circles but attracts criticism from hawks and activists.

For now, Labour’s strategy serves as a test of its foreign-policy credibility. If China responds in kind, such as by reopening markets or softening some harsh policies, the government will claim vindication. If not, critics will charge that Starmer’s warmth has bought little and cost valuable goodwill among allies.

Either way, the choice to reset relations is reshaping Britain’s global posture. As Britain’s House of Lords briefing dryly notes, the onus is on London to deliver a “consistent, long-term and strategic approach.”

In a world where tensions between the US and China dominate headlines, Britain’s gamble is to chart its own course. The coming months will reveal whether that course brings prosperity or peril, and whether Labour’s promise of pragmatism proves successful.

However, a recent emergency move by the British Parliament to take control of a Chinese-owned British steel mill has struck a discordant note amid all the diplomacy. It could raise deeper questions about Starmer’s efforts to cultivate warmer ties with China, at a time when Donald Trump’s tariffs are sowing fears about protectionism and fraying trade agreements worldwide, forcing the European country to find geopolitical hedges.

Britain intervened to stop a Chinese-owned plant in Scunthorpe from closing its blast furnaces, risking 2,700 jobs and a strategic supply. Failed talks sparked accusations of bad faith and raised concerns over Chinese investment in sensitive sectors.

Meanwhile, Hong Kong barred MP Wera Hobhouse, a critic of its free speech record. As Starmer seeks to revive the “Golden Era” of Sino-British ties, tensions and mistrust remain, leaving the future of cooperation uncertain.

The post UK seeks new chapter in China ties appeared first on International Finance.

As the Donald Trump administration’s aggressive trade tariffs on Chinese goods reach historic levels, most notably a 104% tariff, Beijing is striking back by weaponising a segment of the global supply chain that it controls like no other. This isn’t just about retaliatory theatrics. Beijing is increasing export restrictions on seven varieties of rare earth minerals, a class of seventeen elements essential for the operation of our contemporary high-tech economy.

From stealth bombers to cellphones, this action has significant consequences that could undermine worldwide manufacturing sectors strongly dependent on these inputs, thus threatening stability.

China’s strategic asset

Almost 70% of the rare earth minerals produced worldwide come from China. High-tech manufacturing depends on these 17 factors. China also dominates the refining and processing stages, exerting almost total control over the world market.

Other nations, including the United States and Europe, have not invested enough in building alternative supply chains or processing facilities. Rare earth elements (REEs) may not be household names, but they are foundational to everything from iPhones to electric vehicles to advanced missile systems. The nation has used this pressure before, notably in 2010 during a territorial dispute with Japan, but the scope and timing of the current export restrictions reflect a notable increase.

No other country approaches China’s supremacy in this area. The complicated rare earth supply chain requires not only extraction but also high-level processing and refining, areas where China maintains near-total control. Western nations, including the United States and European Union (EU) member states, have long understood this vulnerability, but little has been done to mitigate it. Now, that weakness is being exploited.

Importantly, this is not Beijing’s response to Biden-era semiconductor controls. The new export restrictions are a direct reaction to the Trump administration’s 104% tariffs on Chinese electric vehicles and related products. This move marks the first time that Beijing is officially implementing such sweeping restrictions under the Trump regime.

During the Joe Biden era, China did not impose such rare earth export controls. The timing signals a sharp escalation in trade retaliation.

The backbone of high-tech manufacturing

Rare earths are indispensable in the manufacture of electric vehicle motors, especially those using neodymium, praseodymium, and dysprosium. They are also used in wind turbines, which rely on rare earth magnets. Consumer electronics such as smartphones, tablets, and TVs incorporate these elements.

Military hardware, including guided missiles, fighter jets, and satellite systems, depends heavily on them. The same is true for medical technology like MRI machines and advanced imaging equipment, as well as emerging fields like quantum computing and AI, which require specialised magnets and sensors.

Simply put, rare earth minerals are crucial to the future and are essential to the present. Without them, entire industries grind to a halt.

Comparing semiconductor bans and mineral controls

The Biden administration banned sales of advanced semiconductors and chipmaking equipment to China to slow Beijing’s AI and military development. China responded by accelerating domestic chip development, with firms like SMIC taking the lead. In contrast, the US and Europe are still heavily dependent on China for rare earths.

China’s export control hit US manufacturing more directly than Biden’s chip ban hit Chinese tech. While China managed to continue its tech advancements despite the semiconductor restrictions, the West does not have a clear or immediate substitute for the rare earth supply.

Rare earths are also mined in Australia, the United States (notably in Mountain Pass, California), Canada, Myanmar, Vietnam, India, and Brazil. However, none of these sources can match China’s capacity or cost-efficiency.

Many of these projects are still in exploration or early development stages. Refining and processing infrastructure is even more limited outside China. The US has rare earth deposits but lacks domestic refining capacity.

Efforts to revive domestic production are slow due to environmental, regulatory, and cost barriers. The Pentagon has funded some rare earth initiatives, but they’re years away from meeting industrial-scale demand. Europe, meanwhile, has barely started its journey.

Adding environmental concerns and local resistance to mining projects clarifies why the West struggles to increase domestic production despite recognising the strategic risks.

A world domino effect

Beijing’s move to forbid rare earth exports will probably cause world rare earth material prices to rise sharply. Along with disturbances in defence and space projects, it will cause manufacturing delays in high-tech industries.

In expectation of long-term shortages, countries could start hoarding goods. Attempts to diversify supply chains will quicken, and outside of China, new investments in rare earth exploration and processing will most certainly explode.

Rising production costs and manufacturing delays will affect economies around the globe. For the United States, this action greatly worries Washington. Military contracts, manufacturing of electric cars (a Biden focus), and even consumer electronics could experience delays and cost overruns.

Germany, for example, mostly depends on imported rare earths for its automotive industry. Nations like France and the United Kingdom, pursuing dramatic green energy transitions, will also feel the pressure.

Europe is as dependent as the US on China for rare earths. The German automotive industry will be hit particularly hard. The continent’s goals for green energy, including wind energy, electric vehicles, and solar infrastructure, rely on a stable supply of rare earth materials.

While the EU has announced plans for rare earth independence, those plans are still years behind. Europe faces tough choices: align more closely with the US trade strategy or negotiate independently with China to preserve access.

European tech firms, automakers, and clean energy projects depend on a stable supply of REEs. With Beijing tightening the screws, the EU might have to choose between aligning more closely with the US trade stance or finding a middle ground to preserve access. In either case, Europe is set to suffer.

Rare earths in warfare and industry history

Rare earth elements have been strategic commodities long before the smartphone era. During the Cold War and the space race, they were used in radar systems, missile guidance, and nuclear submarines.

These elements were also vital in the development of stealth technologies and nuclear-powered aircraft carriers. In the 1980s, the United States led the world in rare earth mining, with Mountain Pass in California serving as a global hub for extraction and initial processing. At that time, the US was not only producing the majority of the global supply but also setting the technological standards for its use in defence and aerospace.

However, the combination of rising environmental concerns, public opposition to hazardous waste, and increased compliance costs with domestic regulations made domestic mining unsustainable. This opened the door for China, which strategically scaled up its production, offering rare earths at prices Western producers could not match.

Beijing also acquired key processing technologies and expertise, allowing it to dominate the full value chain from raw material to finished components. As a result, production rapidly shifted overseas. China stepped in, capitalising on low labour costs and lax environmental standards.

In the 1980s, the US led the world in rare earth mining. However, lax environmental laws and cheap labour in China allowed Beijing to undercut prices, leading to the decline of US operations and the rise of Chinese dominance, a strategic mistake now haunting Washington.

This shift was not just an economic adjustment; it marked the beginning of a new geopolitical dynamic where China began to treat rare earths as instruments of power projection.

Environmental and ethical implications

Rare earth extraction is often dirty, dangerous, and linked to pollution and displacement. The toxic waste lakes of Baotou, China, highlight the environmental toll. These ponds are filled with a black, radioactive sludge that can take centuries to degrade.

Mining operations in southern China have also led to deforestation and the destruction of arable land. Local communities suffer from high cancer rates, contaminated groundwater, and reduced agricultural productivity.

In places like Myanmar and the Congo, associated mining operations for rare earths and critical minerals have led to deforestation, water contamination, and human rights abuses. There are growing concerns about child labour, unregulated artisanal mines, and violent territorial disputes funded by mineral wealth.

Rare earth extraction is often dirty, dangerous, and linked to pollution and displacement. Western nations, committed to high environmental standards, have long baulked at domestic production, giving China, with more permissive laws, the upper hand. Ethical sourcing has become a major concern for Western governments and consumers, leading to discussions about certifying “clean rare earths” and imposing new import standards.

Japan has led the charge in urban mining, investing in the recovery of REEs from used electronics and industrial waste. It has developed robotic systems that can dismantle smartphones and extract trace amounts of neodymium and dysprosium from discarded magnets.

Europe and the US are exploring similar initiatives. Researchers are experimenting with biometallurgy, using bacteria to extract metals from scrap. Though not a replacement for mining, recycling could provide critical backup and help close the loop on tech waste.

A mature recycling ecosystem could eventually meet up to 20% of global REE demand. Policymakers are now discussing the establishment of e-waste hubs and circular supply chain zones to support this goal.

Impact on developing nations

The ripple effects of a rare earth squeeze are global. Countries in Africa, Southeast Asia, and Latin America, where electrification and clean energy adoption are priorities, could face rising costs and project delays.

If prices surge, so do the costs of solar panels, batteries, and electronics, stalling developmental goals and exacerbating technological inequality. Nations like Kenya, Bangladesh, and Brazil, which are pushing for green infrastructure, may find themselves locked out of critical technologies.

For example, electric public transport systems, solar grid rollouts, and affordable smart devices may suddenly become financially unviable.

Moreover, as wealthy nations rush to secure alternative sources, they risk crowding out smaller economies, driving a wedge between the Global North and South.

Finding strategic responses

While the European Union has proposed the Critical Raw Materials Act, the US has enacted the CHIPS and Science Act and the Inflation Reduction Act. These programmes seek to encourage processing technologies, subsidise domestic mining, and create strategic connections. The CHIPS Act provides subsidies for domestic businesses focusing on sustainable extraction techniques and billions in investment for rare earth research and development (R&D).

The EU has also allocated funds for strategic stockpiling and circular economy initiatives. Talks of a “rare earth alliance” with Australia, Canada, and other like-minded countries suggest a coordinated response to China’s dominance.

With this global approach, the goal is to create a safe, diversified, and ecologically conscious rare earth supply chain that is resistant to geopolitical shocks. These discussions also involve nations like Japan and South Korea, which recognise the shared vulnerability among allies.

Big companies are making changes. Apple is increasingly focused on recycling rare earths. From speakers to Taptic Engines to MagSafe assembly, its newest products feature 100% recycled rare earths in components. While researching motor technology that reduces reliance on rare earth resources, Tesla has pursued contracts with Lynas and other non-Chinese suppliers.

Through federal procurement rules, defence corporations such as Lockheed Martin and Raytheon are advocating for REE supply security. Contingency planning is no longer optional across sectors; it has become strategic. Businesses are mapping out several levels of suppliers, funding replacement R&D, and pushing governments for tax breaks tied to mineral independence.

China’s dual circulation strategy

China’s rare earth policy aligns with its “dual circulation” strategy, which emphasises domestic resilience over export dependence. This strategy aims to create self-sufficiency in critical technologies while maintaining export dominance in low- to mid-tech manufacturing. By restricting rare earth exports, Beijing pressures rivals and strengthens its internal capabilities, ensuring that key sectors such as AI and energy remain insulated.

The central government has also linked rare earth planning with its “Made in China 2025” initiative, which seeks to dominate high-tech fields. In essence, rare earths have become both a shield and a spear in China’s economic doctrine.

While effective in the short term, China’s restrictions may backfire. Many of its tech giants depend on global supply chains. Companies like Huawei, Lenovo, and CATL rely on Western-designed components and foreign markets for growth. If the West accelerates diversification and decoupling, Chinese firms may lose access to advanced tools, foreign investment, or international markets.

There is also a risk of retaliatory measures. Countries could impose tariffs, sanctions, or restrictions on other Chinese exports, such as lithium batteries or solar panels. The rare earth weapon, which was once used, may galvanise rivals into building a more resilient and self-sufficient global order that ultimately leaves China more isolated.

As tensions rise, we may witness a rare earth arms race or the emergence of a NATO-style alliance for critical minerals. Countries could nationalise resources, hoard supplies, and forge exclusive trade blocs. Global institutions like the IMF and World Bank might be pressured to treat mineral security as part of economic development policy.

Private investors could shift capital from fossil fuels to mining projects, creating a new boom and potentially a new bust.

New era of strategic commodities warfare

What we are witnessing is not a temporary reaction. China’s control over rare earths is a frontline asset in a prolonged trade and tech war. With Trump imposing steep tariffs and Beijing responding with surgical strikes on supply chains, the world is hurtling into a new era of economic warfare where commodities, not just capital, are the weapons of choice.

The world is entering a new era where the control of strategic resources, not just financial capital or trade tariffs, will define geopolitical dominance. China’s tightening grip on rare earth minerals is not merely a retaliatory gesture in response to US tariffs, but is also a long-term recalibration of power, influence, and economic leverage.

With its export controls, Beijing has sent a loud, unmistakable message: it will use every asset at its disposal to defend its interests and shape the global order.

Rare earth elements are no longer obscure components tucked away in the background of our gadgets and machines. They are central to modern civilisation, embedded in every facet of high-tech manufacturing, green energy innovation, defence infrastructure, and emerging technologies like AI and quantum computing.

China’s near-monopoly over these elements means that the world’s dependence is not only economic but deeply systemic. If rare earths are disrupted, entire industries could come to a halt.

The global response to China’s rare earth export controls will define the trajectory of international relations and industrial strategy for years to come. Countries like the US, Japan, Germany, and others will have no choice but to accelerate their investments in alternative mining, processing, and recycling infrastructure.

This shift will demand capital, as well as political will, regulatory reform, and public support, especially in democracies where environmental concerns and community resistance have historically delayed mining projects.

China’s move could also reshape the alliances of the 21st century. Just as oil shaped the geopolitical contours of the 20th century, rare earths could drive the formation of new trade blocs, technological pacts, and even defence agreements.

We may witness the birth of a global rare earth alliance, with nations banding together to secure critical mineral supply chains. This could lead to a bifurcated global system, where countries are forced to choose sides based on resource access and technological sovereignty.

At the same time, the West must confront its past failures. For too long, it ceded the rare earth sector to China in the name of cost savings and environmental convenience. That strategic complacency has now become a liability. Rebuilding rare earth capacity will not be easy or cheap, but it is no longer optional.

Meanwhile, developing nations face the danger of being sidelined or exploited as the mineral race intensifies. Rising costs and resource hoarding could derail sustainable development goals and widen the tech divide between rich and poor nations. Ethical sourcing, environmental safeguards, and fair-trade principles must be part of the new rare earth order.

Ultimately, the rare earth confrontation is not just a skirmish in the broader US-China rivalry. It serves as a wake-up call. In this new era of strategic commodities warfare, dominance will belong to those who secure today’s supply chains and the innovation ecosystems of tomorrow. The global balance of power may well hinge on who controls the dirt beneath our feet and how responsibly they wield it.

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Those who have long profited from the abundance of globalisation find the waves moving toward “de-globalisation” unsettling. But are we seeing a deliberate, if sloppy, diversification of supply chains and allegiances, or is this a worldwide unravelling?

To address this, one must navigate a sea of tariffs, trade conflicts, and rising tensions—both metaphorical and real. The rise of a global powerhouse wasn’t limited to the rivalry between the United States and China. Their economic connection perfectly embodied the promise of globalisation throughout much of the late 20th and early 21st centuries.

With its large workforce and developing infrastructure, China became the world’s factory. Accounting for 28% of world production in 2018, it had surpassed the United States as the biggest value-added manufacturer by 2010.

A Harvard Business Review analysis claims that China’s explosive climb was not accidental. It drew upstream players—those handling components and raw materials—by using its size, low-cost labour, and major expenditures in infrastructure and education. Drawn by China’s competitive advantages and promise of large profits, over a million global businesses set up operations there. For the United States, this system was mutually advantageous until it wasn’t. The political currents started to change as industrial employment disappeared on American territory. Once praised as economic synergy, it turned into a disadvantage for US politicians.

Trump’s trade war: Filing for divorce

Under Donald Trump’s administration, 2018 saw the first notable cracks in US-China ties. Driven by a vision of “make America great again,” Trump started a trade war, imposing 25% tariffs on $34 billion worth of Chinese imports, including vehicles, hard drives, and aircraft parts. China retaliated, leading to a reciprocal exchange of taxes and levies that shook global markets.

Companies caught in the crossfire had an ugly choice: stay in China and pay the expenditures or move and deal with logistical headaches and exaggerated expenses. Although Trump presented the trade war as a battle to recover American jobs, the truth was more complex.

Decoupling from China, America’s biggest trading partner, was not easy work. China’s excessive reliance on international supply networks has isolated the US economy, necessitating more than just aggressive language and punitive taxes.

US-China relationship: Ballooning tensions

By 2020, the COVID-19 pandemic exacerbated the US-China relationship, transforming from a health crisis into a geopolitical flashpoint marked by mutual accusations over the virus’s origin, further eroding trust between Washington and Beijing. Trump’s voice wavered between confrontational and conciliatory. He said at Davos in January 2020 of his unmatched friendship with Chinese President Xi Jinping: “Our relationship with China has now perhaps never, ever been better… He is for China; I am for the United States; other than that, we adore one another.”

Four months later, the tune evolved. Declaring Beijing to have “ripped off the US like no one has ever done before,” Trump charged China in a Rose Garden speech with decades of misbehaviour. Once regarded as a victory, the first trade pact collapsed. China had far missed its buying targets by the end of 2020.

Little relief came when Joe Biden entered the White House. Biden instead doubled down, tying economic recovery to manufacturing independence, whereas many expected his presidency to take a softer posture. Declaring in his first speech to Congress, “There is simply no reason the blades for wind turbines can’t be built in Pittsburgh instead of Beijing.”

Decoupling in “Use Decoupling” for the United States meant spreading supply chains and depending less on Chinese labour. Among the alternatives were Mexico, Vietnam, and other ASEAN nations.

Mexico had grown to be America’s top commodities trading partner by 2023; US imports of Vietnamese computers doubled between 2017 and 2023. China was not lazy either. By raising domestic content in important sectors to 70% by 2025, the “Made in China 2025” project sought to lessen reliance on outside technologies.

Beijing simultaneously signalled a turn from Western markets by strengthening connections with rising economies in Latin America and Southeast Asia. There was a drawback, though, with this “diversification.” Many Vietnamese computers, for example, depended on parts imported from China. Thus, the US unintentionally kept indirect linkages even as it tried to separate itself from Chinese manufacturing.

Lessons learnt from Russian

As the United States and China navigate their uneasy relationship, another decoupling is reshaping global trade and geopolitics—Russia’s growing estrangement from the West and its deepening partnership with China. Triggered by Western sanctions and Russia’s own geopolitical ambitions, this pivot is altering power balances and creating new challenges for global stability.

Russia’s decoupling from the West began in earnest after it annexed Crimea in 2014 and accelerated following the 2022 invasion of Ukraine. The West responded with sweeping sanctions that targeted Russian energy exports, financial institutions, and access to advanced technology.

Europe, once Russia’s largest market for oil and natural gas, reduced its energy imports drastically. The Nord Stream pipeline explosions in 2022 symbolised the end of Russia’s dominance in European energy markets.

Faced with economic isolation, Russia sought alternatives to maintain its resource-dependent economy. This included diversifying trade relationships, strengthening self-reliance, and deepening ties with non-Western allies. Among these, its growing alignment with China emerged as the most significant development.

China and Russia have long shared a pragmatic relationship, rooted in mutual distrust of the West and complementary economic interests. As the West imposed sanctions on Russia, China became a critical economic partner. Bilateral trade reached $190 billion in 2022 and continues to grow, largely driven by energy. Russia’s crude oil and natural gas exports to China have surged, facilitated by major infrastructure projects such as the Power of Siberia pipeline. This partnership is not limited to energy. Russia has turned to China for advanced technology, including semiconductors and telecommunications equipment, to mitigate the effects of Western embargoes. Military cooperation has also deepened, with joint exercises and arms trade fostering strategic alignment.

For China, Russia represents a reliable energy supplier and a geopolitical ally that can help counterbalance US influence. Russia’s willingness to sell energy at discounted rates makes it an attractive partner for Beijing, especially as it seeks to diversify its supply sources amid its own tensions with the US.

The Russia-China alignment has profound implications for global geopolitics and trade. Economically, Russia’s dependence on China risks making it a junior partner in the relationship. While Beijing benefits from favourable trade terms, Moscow faces limited bargaining power, which could undermine its long-term strategic autonomy.

Geopolitically, this partnership challenges the Western-led global order. It strengthens the influence of authoritarian regimes and creates a bloc that can resist American economic and diplomatic pressure. For instance, Russia and China’s cooperation in forums like BRICS and the Shanghai Cooperation Organisation enables them to advocate for alternative financial systems and governance models.

However, the partnership is not without vulnerabilities. China’s cautious stance on openly supporting Russia during the Ukraine conflict demonstrates its interest in balancing ties with the West. Meanwhile, Russia’s over-reliance on China could stifle its ability to diversify trade and modernise its economy.

In the long run, the Russia-China alignment underscores the fragility of a polarised global order. While it provides short-term gains for both nations, it also risks creating economic dependencies and deepening divisions that could destabilise global trade and diplomacy. As with the United States-China decoupling, the question is not whether this relationship will reshape the world but how sustainable it will be in the face of shifting geopolitical priorities.

The cost of de-globalising

One cannot overestimate the financial effects of de-globalisation, or its variants. McKinsey claims that up to 90% of important commodities and services traded between Eastern and Western countries might be reduced by a fragmented global trade system.

From technology to agriculture, the repercussions would affect several sectors and challenge economic stability. Not everyone, meanwhile, believes that de-globalisation is approaching. Zidong Gao and Joe Seydl contend in an article for JP Morgan that rather than swiftly de-globalising, supply networks are diversifying.

This “slow-moving maturation” shows a movement from too high a concentration in China away from a full retreat from globalisation. Education in Economic Diplomacy In a 2022 Vogue story, Gwyneth Paltrow compared her divorce from Chris Martin to the detonation of a helium balloon.

She noted, “The beginning of the end was something more unconscious than conscious.”

A genuine helium balloon, China’s infamous “spy balloon,” would capture the frailty of United States-China ties months later. Beijing said it was a meteorological gadget gone off course, while Washington argued it was surveillance equipment.

Biden said the episode represented a new low, embarrassing Xi Jinping, a “dictator” ignorant of the events in his own country. One wonders whether the two countries may adopt Paltrow’s “conscious uncoupling” idea among these theatrics.

If a friendly economic split is conceivable, it would benefit both sides significantly more than the current cycle of escalation and retribution. Despite their disputes, the United States and China remain deeply intertwined.

Goods valued at $576 billion came from China to the United States in 2022; $179 billion made the opposite trip. Such amounts underscore the challenge of achieving a clear break. Watching as these two economic heavyweights negotiate their tense relationship is the world. Whether they can coexist—or even cooperate—will decide the direction of world trade for the next decades. Right now, on all sides, the language of economic nationalism rules.

As history has demonstrated, nevertheless, isolationism hardly produces wealth. Instead of whether the US and China should decouple, the question is how to do so without destroying the global economy.

According to McKinsey, diversification rather than de-globalisation will define commerce going forward. Let’s hope the United States and China follow this counsel for the sake of world stability—and maybe draw some lessons from Paltrow’s book. After all, even the most turbulent relationships may finish civilly.

The post The price of decoupling: Global trade under strain appeared first on International Finance.

According to the state-sponsored Beijing Daily newspaper, autonomous cars that pass safety evaluations and road testing will be eligible to apply for road trials. The new rules will go into effect on April 2025. The city earlier stated that it was in favour of autonomous vehicles for private automobiles, urban buses, trams, and taxis, and it hopes to promote the development of intelligent road infrastructure to facilitate these modes of transportation.

Wuhan, a city in central China, also announced in a separate notice released that it had authorised rules to encourage the development of intelligent connected vehicles. At least 19 cities are testing robotaxis and robobuses as part of China’s aggressive approval of self-driving technology trials, according to a Reuters report from August.

Apollo Go, a division of the tech behemoth Baidu, is one of the companies with sizable fleets of robotaxis in operation in China. By the end of 2024, the company intends to have 1,000 robotaxis in Wuhan. Having gone public in the United States market in November, Pony Dot AI intends to increase the number of its robotaxis from 250 this year to over 1,000 by 2026. Other companies, such as WeRide, AutoX, and SAIC Motor, are investigating robotaxi prospects in the largest automobile market globally.

The governments of several major cities in China’s affluent Guangdong province announced on December 27 about concluding a mutual recognition agreement of permissions to test self-driving vehicles, thereby marking a big step forward in the development and adoption of autonomous vehicles in the region. The move will allow companies to test their robocars on public roads in the districts of Qianhai and Bao’an in Shenzhen, the Nansha district of Guangzhou, and Hengqin island in Zhuhai, once they get a permit from any of the local governments.

Hong Kong and Macau’s special administrative regions are also expected to join the agreement, as part of a broader goal to establish China’s biggest area for self-driving car tests in the Greater Bay Area, which includes Guangdong, Hong Kong, and Macau. Several Chinese companies have become the first beneficiaries of the effort, including Pony.ai, a Nasdaq-listed robotaxi developer, as well as Apollo Go.

Pony.ai reportedly operates around 250 robotaxis in a combined area of 2,000 square kilometres (772 square miles) in China’s four top-tier cities, which include Beijing and Shanghai, while having set up 3,000 pick-up and drop-off points in Guangzhou and Shenzhen.

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Al-Maliki made the statement during the inaugural Arab-China Ministerial Meeting on Housing and Urban Development, held alongside the 41st session of the Arab Ministers of Housing Council in Algeria. As per the Kuwait News Agency, the event also aims to lay the groundwork for a strategic partnership that will benefit both the Gulf countries and the world’s second largest economy.

Beijing has continued its effort to draw global attention due to its diplomatic and trade efforts in the Middle East. In May 2024, the China-Arab States Cooperation Forum in Beijing gathered leaders from Saudi Arabia, the UAE, and Egypt, culminating in the Beijing Declaration, which emphasised strengthening China-Arab cooperation and building a shared future.

“China has become the second-largest trading partner for Arab countries, with trade volume increasing from $36 billion in 2004 to nearly USD 400 billion in 2024,” Al-Maliki stated, while highlighting the vital role of the housing and construction sectors in driving socioeconomic development, apart from underscoring the importance of China-Arab economic ties.

Al-Maliki further stressed that the partnership between Arab states and China in the fields of construction and urban development could offer innovative, sustainable solutions to address global challenges, such as rapid population growth, climate change, and the need for sustainable resource management.

Algerian Housing Minister Mohamed Belaribi, who currently chairs the Arab Housing Ministers Council, described the meeting as a significant step toward forging high-level partnerships built on mutual benefit.

“Arab-Chinese relations have evolved since the 1950s, serving mutual interests and strengthening their positions regionally and globally,” Belaribi said, as reported by the Arab News.

The Algerian official added that the meeting provided an opportunity to exchange expertise on key issues like housing sustainability, smart cities, earthquake-resistant construction, and urban renewal.

Chinese Minister of Housing and Urban-Rural Development, Ni Hong, during the event, emphasised the vast potential for enhanced cooperation between Arab countries and China in the construction and development sectors.

“This opens the door for strengthened exchanges and marks the beginning of a new chapter in our collaborative efforts,” he said, while also commending Arab countries for their achievements in urban development and expressing optimism for mutually beneficial outcomes.

Hong further highlighted China’s ongoing commitment to forging stronger ties with Arab nations through initiatives such as signing memorandums of understanding and conducting seminars and training programmes.

China’s Gulf outreach is a part of its broader geopolitical strategy, particularly when it comes to fulfilling the ambitious Belt and Road Initiative (BRI), a major element of Beijing’s international cooperation efforts.

Launched in 2013 by Chinese President Xi Jinping, the BRI aims to enhance global connectivity and foster cooperation in areas such as infrastructure, trade, finance, and cultural exchange, drawing inspiration from the ancient Silk Road.

Over the past decade, the BRI has expanded its scope to include over 150 countries and 30 international organisations, supporting projects ranging from railways and ports to green energy and digital infrastructure. The ongoing collaboration between China and Arab countries, particularly in the housing and construction sectors, reflects the growing strength and scope of the BRI’s global ambitions.

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