By Trevor Hunnicutt
WASHINGTON (Reuters) -U.S. President Donald Trump threatened to hike tariffs on Chinese exports and cancel a meeting with President Xi Jinping, in a broadside against Beijing on Friday that sent markets and relations between the world’s largest economies into a spiral.
Trump, due to meet Xi in about three weeks in South Korea, complained on social media about what he characterized as China’s plans to hold the global economy hostage after China dramatically expanded its rare earth element export controls on Thursday. China dominates the market for such elements, which are essential to tech manufacturing.
Trump said there was no reason to hold the meeting with Xi that he had previously announced. Beijing had never confirmed the meeting between the leaders.
The remarks signaled the biggest rupture in relations in four months and immediately raised questions about whether an economic detente between Beijing and Washington – the world’s biggest factory and its biggest consumer – can survive.
Trump, a Republican who has wielded tariffs paid by U.S. importers against friends and foes, said on Friday that he was weighing a “massive” increase in such levies on Chinese-made goods.
Such a step could revive a destabilizing tit-for-tat trade war that Washington and Beijing paused amid painstaking diplomacy earlier this year. Beijing has long called for Washington to abandon unilateral trade restrictions it says undermine global commerce.
MARKETS TUMBLE ON TARIFF THREATS
The unexpected broadside shook global financial markets, sending the benchmark S&P 500 Index sliding by 2%, its biggest one-day drop since April when a steady barrage of tariff announcements by Trump was a central feature of market volatility. Investors fled into the safe haven of gold and U.S. Treasury securities, and the U.S. dollar weakened against a basket of foreign currencies.
“Trump’s post could mark the beginning of the end of the tariff truce,” said Craig Singleton, a China expert at the Foundation for Defense of Democracies, who said Washington viewed the export control steps as a betrayal. “Beijing appears to have overplayed its hand.”
In his post, Trump said China has been sending letters to countries worldwide saying it planned to impose export controls on every element of production related to rare earths.
He said he had been contacted by unnamed countries incensed over Beijing’s steps and said he was surprised because of the “very good” recent relationship with China.
TRUMP CONDEMNS BEIJING’S ‘HOSTILE ORDER’
“Dependent on what China says about the hostile ‘order’ that they have just put out, I will be forced, as President of the United States of America, to financially counter their move,” Trump said on Truth Social. “For every Element that they have been able to monopolize, we have two.”
He added: “I was to meet President Xi in two weeks, at APEC, in South Korea, but now there seems to be no reason to do so.” Trump had earlier said he would meet Xi on the sidelines of the Asia-Pacific Economic Cooperation forum being held in Gyeongju, South Korea, starting October 31.
The White House and the Chinese embassy in Washington did not immediately respond to a request for comment.
A spokesperson for the U.S. Trade Representative declined comment on what countermeasures Trump was contemplating while a spokesperson for the U.S. Treasury did not immediately respond to a request for comment. The two offices have led talks with Beijing on trade.
Economic tensions had been rising in recent days. The Trump administration on Thursday, for instance, proposed banning Chinese airlines from flying over Russia on routes to and from the United States. The Federal Communications Commission said on Friday that major U.S. online retail websites have removed millions of listings for prohibited Chinese electronics.
China’s move on Thursday included adding five new elementsas well as dozens of pieces of refining technology to its export-restricting control list. It also required foreign rare earth producers that use Chinese materials to comply with its rules.
China produces over 90% of the world’s processed rare earths and rare earth magnets. Many are vital materials in products ranging from electric vehicles to aircraft engines and military radars.
(Reporting by Trevor Hunnicutt; additional reporting by David Brunnstrom, David Lawder and Maiya Keidan; Editing by Caitlin Webber and Deepa Babington)
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