China’s MOFCOM (Ministry of Commerce) didn’t have much rest during the recent Chinese mid-autumn festival holidays. On the first day back after the National Day holiday, on 9th Oct, MOFCOM issued six new export restrictions covering rare earth technologies and equipment, superhard material-related items, and lithium batteries and artificial graphite anode materials. Decisions No. 56, 57, 61 and 62 imposed export control restrictions on rare earth and related items, Decision no 58 was on lithium batteries, cathode materials, artificial graphite anode materials and related equipment and Decision No. 55 on the export control restrictions on synthetic diamond and related items. The above decisions go beyond raw materials to include related technologies, equipment, and re-export activities. They also focus on high-value medium and heavy rare earth elements (M/H REEs) and their downstream magnet and alloy applications. But why the action now. We believe Beijing is building a long-term, institutionalized deterrent via these measures, and is moving away from one-off embargoes. Hence China is building it’s own export control system in response to US chip restrictions to China. We also believe Xi is trying to raise the bar for negotiations if the Xi-Trump meeting happens at Asean meet in South Korea in end Oct. But seeing Trump's response today announcing 100% tariffs on all Chinese imports in to US over and above all existing tariffs, must mean China miscalculated any US response. The new export control measures mean China can change the rules of the game at any point of time which does not augur well for a stable global supply chain. US as well as RoW might accelerate steps towards creating a "China free" supply chain. As of 2024, But China remained the world’s leading producer of at least 30 of the 50 minerals deemed critical to US interests, and held an even stronger position in rare-earth refining and magnet production, accounting for roughly 90% of global output. So in short term Chinese export control measures might trigger abnormal increase in their exports till 9th Nov, the date when these control measures kick in. We now see very less chance of Xi Trump summit in the ASEAN summit in end Oct. China’s actions in our view start a new phase in US–China strategic competition. So our initial view on CNH drifting towards 6.5 by mid CY26 is not valid any more considering the strategic nature of US China trade war now. Risk assets globally might be under severe stress due to news flows on above export controls from both US & China. Long end USTs look safe haven again with DXY still range bound between 97.5-98.5. From a tariff point of view, the average tariff rate on China would rise to around 140%, and the US average tariff rate would increase 13.2 percentage points to almost 30%.
