US-Japan Rare Earth Alliance Seeks to Undermine China’s Supply Chain Dominance

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Summary:

The United States and Japan are jointly advancing rare earth mining and refining capabilities in the US to reduce dependency on China's supply, amid rising geopolitical tensions and export restrictions from Beijing....

Strategic Realignment in Rare Earth Supply Chains

At the Mount Fuji Forum in Tokyo, U.S. Ambassador to Japan George Glass announced that part of Japan’s $550 billion investment pledge to the U.S. will be allocated to revitalizing America's rare earth mining and refining sector. This initiative aims to counter China’s grip on global supply chains and reduce strategic vulnerabilities.

Ambassador Glass explicitly criticized Beijing’s tightening export controls over rare earths, labeling the move as a coercive tactic to dominate and manipulate the global supply ecosystem. His remarks reflect a broader sentiment shared by both governments: that overreliance on a single supplier for critical minerals poses long-term geopolitical and economic risks.

China's Escalating Export Controls

Beijing’s recent regulatory decisions serve as the immediate trigger for this rare earth realignment. Following earlier restrictions on seven rare earth elements in April, China extended its list on November 8 by adding five more elements, requiring export licenses. Furthermore, new limits on the export of rare earth-related manufacturing and processing equipment were introduced, further tightening the supply bottleneck.

These regulatory shifts have a direct causal impact on the rare earth-dependent sectors, particularly defense and advanced technology industries. Disruption in access to these materials could significantly hinder manufacturing timelines and innovation cycles in the U.S. and its allies.

Dependence and Vulnerability: The US Rare Earth Gap

Currently, over 70% of the rare earth materials imported by the United States originate from China. Additionally, the U.S. remains fully dependent on foreign sources for at least 15 critical minerals, a condition now widely recognized as a strategic liability. Ambassador Glass noted that the bilateral investment agreement signed in July, which also includes tax reduction measures, will serve as a financial platform for developing rare earth mines and processing infrastructure in the U.S.

The correlation here is unmistakable: stronger domestic extraction and processing capabilities translate directly into reduced exposure to external coercion. Investment in domestic resilience is not merely economic—it is a national security imperative.

Japan’s Strategic Role in the Supply Chain Overhaul

Japan's participation signifies more than financial support; it reflects Tokyo’s shared recognition of the systemic risk posed by China’s dominance in rare earths. Japan itself was a target of rare earth export restrictions by China in 2010 during diplomatic tensions, making the current cooperation deeply rooted in strategic memory.

The joint U.S.-Japan effort represents an alignment of interests: reducing dependency, stabilizing industrial supply chains, and ensuring access to the materials needed for defense, semiconductors, and clean energy technologies.

Global Implications and Emerging Geopolitical Flashpoints

Experts at the forum warned that China’s increasing export controls could severely disrupt global supply chains. The risk is particularly acute for defense and high-tech sectors that rely on consistent rare earth inputs. While discussions between senior U.S. and Chinese officials in Malaysia aim to ease diplomatic strains ahead of the anticipated Trump-Xi summit, the underlying strategic rivalry remains unresolved.

This rare earth decoupling effort exemplifies a broader trend of geoeconomic fragmentation. The global order is increasingly shaped not by comparative advantage, but by strategic autonomy and resource control.

The U.S.-Japan initiative signals a pivot from vulnerability to resilience. By channeling investment into rare earth mining and refining, both nations are laying the groundwork for a less China-dependent global supply chain. The implications extend far beyond economics; they touch on the future balance of technological power, military readiness, and international influence. As geopolitical competition intensifies, rare earth elements are no longer just industrial inputs—they are levers of global strategy.

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Escalating Tensions Over Rare Earths: A Strategic Standoff Emerges

During her speech at the Berlin Global Dialogue on October 25, European Commission President Ursula von der Leyen made a decisive statement: the European Union is prepared to deploy all available tools to respond to China’s export restrictions on rare earth processing equipment. This declaration represents a shift in tone from dialogue to deterrence, especially as global competition over strategic resources intensifies.

President von der Leyen emphasized that while the EU prioritizes immediate dialogue with China, it is simultaneously developing contingency plans in cooperation with G7 allies. Should talks fail to yield results, she confirmed that the bloc is prepared to act unilaterally or collectively through its full array of policy instruments. Among these tools is the recently debated "anti-coercion instrument," described by policymakers as the EU's most forceful trade weapon. This mechanism would empower the bloc to impose tariffs, restrict exports, or sanction foreign businesses in retaliation for coercive economic practices.

France has taken a particularly hawkish stance. On October 24, President Emmanuel Macron urged EU leaders to swiftly activate the anti-coercion instrument in light of China's new trade regulations, reinforcing growing consensus within the bloc for a harder line approach.

The Trigger: China’s Export Controls and Supply Chain Risks

The tensions were ignited by China’s announcement on October 9 to impose export restrictions on rare earth processing equipment. The EU interprets this move as a direct threat to its strategic industries. Rare earth elements are critical for high-tech manufacturing, renewable energy, and defense sectors. Several production lines in Europe have reportedly halted due to disrupted access, indicating a causal relationship between China’s policy shift and the operational stability of EU-based industries.

Von der Leyen warned that Beijing’s restrictions severely undermine other nations’ ability to develop independent rare earth capacities, framing the act as an intentional bottleneck in global industrial development.

Broader Geoeconomic Realignments: From Cooperation to Confrontation

In her speech, Von der Leyen also addressed the evolving nature of global trade dynamics. She highlighted a dramatic transformation from the cooperative expectations set after China joined the World Trade Organization in 2001 to today’s confrontational economic environment. The new global order, she argued, is marked by stolen technologies, hostile investments, and state-led export controls—all contributing to a climate of mutual suppression rather than shared growth.

This shift reflects not only EU-China friction but also a deeper causal evolution in the global economy from liberalization to strategic containment.

Proactive Measures: EU’s Internal Resilience Strategy

To safeguard its economic autonomy, the EU is implementing a comprehensive plan that includes recycling rare earth materials, building joint purchasing mechanisms, increasing strategic reserves, and boosting investment in domestic capabilities. These efforts underscore a preventive strategy designed to mitigate long-term dependency and shield critical industries from future supply shocks.

This approach is not merely reactive but demonstrates a correlation between long-term industrial policy and national resilience. If successful, these policies could gradually reduce the EU’s vulnerability to geopolitical blackmail.

Outlook: Diplomacy Versus Deterrence in Rare Earth Diplomacy

EU Trade Commissioner Maros Sefcovic has already initiated discussions with Chinese Commerce Minister Wang Wentao, with a Chinese delegation expected to visit Brussels for further talks. Despite these diplomatic efforts, analysts warn that unless breakthroughs are achieved soon, tensions over rare earth access are likely to deepen.

Rare earths may thus become the new focal point in the EU–China relationship. As the global order transitions into a more fragmented and confrontational era, the stakes for technological sovereignty and supply chain independence are rising. In this context, the rare earth conflict is more than a bilateral dispute—it is a test case for how nations will secure critical resources in a multipolar world.

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Strategic Reorientation in China's 15th Five-Year Plan

China has formally announced a new developmental direction centered on strengthening the "real economy" a term now elevated to strategic prominence in the country’s 15th Five-Year Plan. The real economy, as articulated by Zheng Zhienjie, Chairman of the National Development and Reform Commission, encompasses all production and tangible services, deliberately distancing itself from speculative, intangible sectors such as real estate speculation and inflated asset bubbles.

This redefinition of priorities marks a conscious departure from decades of heavy reliance on property markets and financial instruments as growth drivers. Despite contributing nearly one-third of China's GDP in value, the real estate sector has proven to offer little technological enhancement. The collapse of this bubble has not only exposed the sector’s lack of real value but also revealed the fragility of an economy over-dependent on unsustainable drivers.

Modern Industrial Ecosystem and Productivity Goals

To operationalize this pivot, China aims to build a modern industrial ecosystem supported by emerging industries such as renewable energy, advanced materials, and aerospace. The plan also includes forward-looking investments in fields like brain-computer interfaces, artificial intelligence, and quantum technology. These sectors are not only projected to enhance national productivity but also reflect China’s intent to lead in the next wave of global innovation.

Furthermore, authorities estimate that traditional industries, when upgraded and quantitatively managed, could generate an additional 10 trillion yuan (approximately USD 1.4 trillion) in economic value over the next five years. This projection indicates a cause-effect strategy: investments in both traditional and future-facing industries are expected to directly raise output and long-term economic resilience.

Export Strategy and Domestic Market Stability

Minister of Commerce Wang Wentao emphasized that while China will deepen its domestic market focus, it will also continue to liberalize foreign access, particularly in service sectors. The goal is twofold: to stimulate internal consumption and to offer international partners market stability during times of global economic uncertainty.

This dual-track approach boosting internal demand while enhancing external openness suggests a correlational link. Sustained export flows and foreign investment can stabilize macroeconomic variables, while domestic consumption offers a buffer against international volatility.

Social Inequality as a Barrier to Sustainable Consumption

Analysts at Nomura highlight an often-overlooked obstacle: the rising inequality gap. Although the issue was acknowledged in the 14th Five-Year Plan, the 15th Plan places it more centrally as a limiting factor for sustainable consumption. With the property sector in decline and geopolitical tensions, particularly in trade, escalating, Beijing now recognizes that narrowing wealth disparities is vital for fueling long-term consumer-driven growth.

This indicates a causal insight: unresolved inequality stifles household spending power, thereby weakening one of the core pillars of the new growth model.

Lessons for Developing Economies: The Vietnamese Context

From a narrower interpretive lens, the real economy concept provides relevant insight for nations like Vietnam. The focus on manufacturing modernization and labor productivity rooted in technological progress emerges as the preferred path toward long-term stability. It highlights that only through tangible production and innovation can economies evade the instability seen in speculative sectors.

China's recalibrated development blueprint signifies not just an economic shift, but a philosophical one. It reasserts the role of tangible, innovation-driven productivity as the bedrock of national strength. By prioritizing the real economy over inflated sectors, China is positioning itself to weather internal and external shocks, foster genuine growth, and pursue technological sovereignty. The implications of this move are profound not only for China’s future but also as a strategic model for similarly structured emerging economies.

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United States: Waning Momentum Amid Labor Strains and Tariff Tensions

Despite some strong quarters, the US economy is losing steam in the second half of 2025. The Federal Reserve is caught between persistent inflation fueled in part by President Trump's aggressive tariff policies and weakening job creation. The Personal Consumption Expenditures (PCE) index rose to 2.9% in August, up from 2.3% in April, keeping inflation above the Fed’s target.

However, job growth has slumped, with only around 15,000 jobs added monthly from June to August down sharply from the 100,000 monthly average in previous periods. Unemployment rose to 4.3% in August, the highest since the COVID-19 pandemic. Tighter immigration controls have disrupted key sectors like manufacturing and agriculture, where immigrant labor is essential. As a result, some firms have cut back production or closed operations entirely.

In Q1 2025, GDP contracted 0.5% due to a rush in imports aimed at avoiding incoming tariffs. In Q2, a sharp drop in imports helped push GDP growth to 3.8%. But signs point to another downturn in Q3, as PMI remains below 50 and imports start rising again. The full-year GDP growth forecast for the US is now 1.6%, down significantly from 2.8% in 2024.

European Union: Stable But Sluggish

The EU economy has shown resilience in the face of global instability and US trade tensions. Eurozone GDP is expected to grow 0.5% in Q3, slightly above Q2's 0.4% and avoiding contraction. Inflation has been kept in check, holding close to the European Central Bank’s 2% target, allowing the ECB to cut interest rates four times this year, from 2.9% to 2.15% by early June.

Thanks to this monetary support, the EU’s full-year GDP forecast for 2025 has been upgraded from 1.0% to 1.2%, although the pace remains far below pre-pandemic norms.

China: Deflation and Structural Headwinds Persist

China is facing a complex set of internal and external problems. Deflationary pressures continue, with August consumer prices falling 0.4% year-on-year. Manufacturing PMI has been below 50 since April, indicating ongoing contraction. The real estate sector remains weak, and small private enterprises struggle with sluggish demand and limited financing.

Trade disputes with the US remain unresolved, further dampening investor and export confidence. GDP growth in Q3 is projected at 4.5%, a slowdown from the 5.3% rate recorded in the first half of 2025.

Emerging Markets: Growth Under Pressure but Still Resilient

Developing economies such as Brazil, India, Vietnam, Indonesia, and Mexico are facing heavy impacts from ongoing US tariffs. Still, robust domestic consumption and supportive government policies have helped them stay among the fastest-growing economies.

Despite external pressures, these countries continue to outperform in relative terms, highlighting the growing importance of internal demand and diversification away from traditional export markets.

Risks and Implications for Vietnam

Global trade headwinds remain a significant concern heading into Q4 2025. The US’s tariff policies, particularly under the Trump administration, are the main source of uncertainty for the global economy. Slower trade growth and weakened industrial output in major economies are expected to weigh on global GDP growth for the rest of the year.

For Vietnam, a cautious and adaptive policy stance is vital. Suggested measures include continued trade negotiations with the US, stronger support for exporters, expanding into non-US markets, and targeted support for SMEs and unemployed workers to cushion external shocks.

The global economy in late 2025 continues to grapple with policy uncertainty, trade disruptions, and uneven growth patterns. While a full-blown recession is not expected this year, the slowdown is real, and risks remain elevated. Countries that adopt agile, balanced policies like Vietnam will be better positioned to weather the challenges ahead.

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Cooling Inflation Strengthens Rate Cut Hopes

According to the Bureau of Labor Statistics, core CPI—which excludes food and energy—rose just 0.2% in September, the lowest in three months. Housing costs, a major CPI component, increased only 0.1%, the smallest rise since early 2021. Year-over-year, core CPI increased 3%, slightly below forecasts of 3.1%. Meanwhile, headline CPI rose 0.3% from August, also below the 0.4% consensus.

The softer inflation data had an immediate positive effect on financial markets: the S&P 500 rose, and Treasury yields dropped. Investors now largely expect the Fed to cut rates by 25 basis points at the next meeting, with another cut likely in December. If a government shutdown delays October CPI data, this September report becomes even more critical for shaping market expectations.

Impact of Tariffs and Goods Pricing

Prices for goods excluding food and energy slowed in September, with used car prices falling notably. However, categories affected by tariffs—like furniture and appliances—saw increases. Apparel prices rose at the fastest pace in a year. While many businesses are holding off on passing higher import costs to consumers, this could shift if tariffs persist. Retailers like RH have already warned of upcoming price hikes.

Even as airfare and rent inflation eased, core services (excluding shelter and energy) continued to rise, indicating that inflationary pressure in services remains—a key concern for the Fed.

Consumer Sentiment Weakens, But Economy Resilient

Consumer sentiment in October dropped to a five-month low amid ongoing inflation concerns. However, the S&P Global PMI survey showed the second-strongest increase in business activity this year, suggesting economic resilience.

In a move to support households, the Social Security Administration announced a 2.8% increase in monthly benefits starting January 2026—an additional $56/month to help cover rising living costs.

The September CPI report signals that inflation is cooling, especially in housing and goods, providing the Fed with more flexibility to shift toward rate cuts. While markets are optimistic, uncertainties remain—particularly around service inflation and trade-related cost pressures. Still, the overall economic backdrop supports a cautiously dovish policy outlook going forward.

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Moscow Eases Monetary Policy in Response to Growing External Pressure

On Friday, the Central Bank of Russia announced a 50-basis-point cut to its key interest rate, lowering it from 17% to 16.5%. This marks the fourth consecutive reduction since June, when rates had peaked at 21% in an effort to rein in overheating from wartime spending. The latest cut, though smaller than previous ones, highlights the central bank’s attempt to balance economic fragility with inflation control under the pressure of intensifying international sanctions.

Governor Elvira Nabiullina clarified that despite the easing, monetary policy remains “tight,” indicating that borrowing costs are still high enough to suppress excessive demand. “The overheating of the economy that we saw last year is beginning to cool, but the adjustment is far from over,” she stated at a press conference.

Economic Growth Stalls Amid War Spending and Labor Shortages

The Russian economy is showing increasing signs of fatigue. Despite higher global forecasts from the IMF, Russia’s outlook continues to deteriorate. The IMF downgraded its 2025 growth forecast for Russia to 0.6%, compared to 1.5% in April. The central bank itself now expects GDP growth between 0.5% and 1% well below earlier projections.

The downturn reflects the cumulative effect of heavy wartime fiscal spending, tightening labor markets, and reduced export revenues. As the government pours resources into the ongoing conflict in Ukraine, key sectors such as energy and defense face mounting inefficiencies. The central bank's actions suggest a growing concern over long-term sustainability rather than immediate crisis management.

New Sanctions Escalate External Risks for the Russian Economy

Just days before the rate cut, the United States imposed a fresh round of sanctions targeting Russian oil giants Rosneft and Lukoil critical sources of export revenue. The measures, announced under President Donald Trump’s second-term administration, prohibit international entities from transacting with these firms and cut them off from most of the global financial system.

Simultaneously, the European Union rolled out its 19th sanctions package, which includes a ban on liquefied natural gas (LNG) imports from Russia and punitive measures targeting two Chinese refineries that import Russian crude. These coordinated moves intensify the economic isolation of Russia, especially in its energy sector, and signal a deepening of Western efforts to undermine Moscow’s war economy.

Nabiullina acknowledged that sanctions are “a negative external factor” and admitted the bank cannot yet assess their full impact. Nonetheless, she reaffirmed the institution’s readiness to manage emerging risks through monetary and fiscal adjustments.

Fiscal Strain and Inflation Risks Force Tough Policy Choices

Russia’s budget deficit has widened due to declining oil prices and reduced energy revenues. In response, the government has announced a range of tax increases for the coming year, including a higher value-added tax (VAT). These measures aim to stabilize public finances but carry inflationary risks in the short term.

The central bank, however, expects inflation to moderate over the medium term, once the immediate impact of tax hikes subsides. “The planned tax increases will help anchor inflation expectations in the medium run,” Nabiullina said, implying a belief that current pricing pressures are transitory rather than systemic.

Still, inflation targeting will become more complex in an environment where both supply-side disruptions (sanctions, labor shortages) and demand-side imbalances (military expenditure) persist simultaneously.

Causal Links: War Spending, Sanctions, and Economic Adjustment

There is a clear causal relationship between Russia’s fiscal overstretch and the need for monetary recalibration. Government war spending has fueled overheating, prompting aggressive rate hikes earlier this year. Now, with growth weakening and sanctions biting harder, the central bank is cautiously unwinding that tightening.

At the same time, the feedback loop from sanctions to fiscal strain and then to tax hikes reinforces a new set of economic constraints. Russia is not only managing a battlefield conflict but also a macroeconomic balancing act. Each policy lever pulled rate cuts, tax increases, reserve management signals both internal vulnerability and strategic recalibration.

Monetary Easing Amid Strategic Uncertainty

Russia’s decision to cut interest rates again reflects a delicate pivot in economic strategy trying to support faltering growth while navigating a tightening web of Western sanctions. As revenue from oil exports declines and fiscal space narrows, the burden on monetary policy intensifies.

The short-term easing may offer some economic relief, but longer-term resilience will depend on whether Russia can adapt to structural isolation from global finance and trade. The real test lies ahead: Can Moscow maintain internal stability while external pressures mount and revenue streams diminish? For now, the rate cut is a sign of vulnerability wrapped in caution, signaling that Russia’s economic war is far from over.

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A Tariff Spat Ignited by a Political Advertisement

On October 25, President Donald Trump announced a 10% tariff hike on Canadian imports, citing a televised ad campaign from Ontario as the catalyst. The ad, aired during the Major League Baseball World Series, used a 1987 speech by former President Ronald Reagan advocating free trade to implicitly criticize Trump’s tariff agenda.

Posting on Truth Social while en route to Malaysia aboard Air Force One, Trump condemned the ad as “a severe distortion of truth” and demanded its immediate removal. In retaliation, he pledged to impose additional tariffs on Canadian products, although the White House has yet to clarify which legal authority will be invoked, when the new tariffs will take effect, or whether they will apply universally across Canadian exports.

Ontario’s $54 Million Ad Campaign Sparks Diplomatic Fallout

Ontario’s provincial government had launched a $75 million CAD (approximately $54 million USD) campaign targeting American television networks throughout October. The campaign featured Reagan’s voice and imagery as a symbolic appeal for trade liberalism clearly at odds with Washington’s increasingly protectionist stance under Trump.

The campaign was designed to influence public opinion in the US, particularly amid domestic criticism of rising tariffs. However, the choice to broadcast the message during a major sporting event appears to have backfired diplomatically. In response, Trump declared an end to all ongoing trade negotiations with Canada.

Premier Doug Ford, whose administration funded the campaign, announced the suspension of the advertisement after consultations with Canadian Prime Minister Mark Carney. The move is seen as an attempt to deescalate tensions and reopen trade dialogue with Washington.

Tariff Impact: Canada’s Export Vulnerability and Industrial Pressure

Canada remains particularly exposed to shifts in US trade policy. Roughly 75% of Canadian exports are destined for the US market, making any unilateral tariff increases from Washington highly disruptive to the Canadian economy.

Although the US-Mexico-Canada Agreement (USMCA) preserves a baseline of tariff-free trade, Trump’s administration has already imposed steep duties across several critical sectors. Tariffs currently sit at 35% for various Canadian products, 50% for steel and aluminum, and 10% for energy exports. An additional across-the-board 10% hike would exacerbate existing pressures, especially for auto manufacturers, metal producers, and energy suppliers.

This escalation risks undoing years of trade normalization and undermines the spirit of USMCA, which was designed to provide stability and predictability in North American trade.

Causal Chain: Political Messaging Triggers Economic Repercussions

The incident underscores how domestic political messaging especially when it crosses borders can quickly escalate into international economic consequences. Trump’s reaction to the Ontario ad campaign illustrates a direct causal link between media narratives and high-level trade policy. The rhetorical symbolism of Reagan’s free-market legacy was perceived not as nostalgic homage but as a pointed critique of current US policy, prompting a swift and punitive response.

What began as a media strategy to sway public discourse has now triggered a policy shift with tangible implications for bilateral trade and industrial output. The reaction also reflects Trump’s ongoing use of tariffs not merely as economic tools but as instruments of political retaliation.

Political Optics Overshadow Trade Stability

Trump’s decision to impose new tariffs on Canada over an advertisement signals the fragile state of North American trade relations. While Ontario’s quick withdrawal of the campaign may open the door for resumed talks, the episode highlights how quickly diplomatic ties can deteriorate under the weight of symbolic provocations.

As the US heads into a turbulent election season and global supply chains remain under strain, unpredictability in trade policy could further unsettle industries reliant on stable cross-border exchange. The message from Washington is clear: in this administration’s playbook, even perceived slights can come with a hefty price tag.

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