Rarer than rocking horse poo?

Trump’s Liberation Day tariffs have cast a shadow over the global economy and placed the US and China’s long-term power struggle in the spotlight.

The supply of critical minerals and rare earth elements are considered a US national security risk.

Tensions with China which, are already high, could increase following Trump’s latest move which, is to apply tariffs on critical minerals. A spokesperson said ‘President Trump recognises that an over-reliance on foreign critical minerals and their derivative products could jeopardise US defence capabilities, infrastructure development, and technological innovation.’ Defence technologies from the F-35 jet to unmanned aerial vehicles and Tomahawk missiles all depend on rare earth minerals.

This could trigger a new critical minerals trade war as the US tries to break China’s dominance of crucial rare earth mineral mining and processing. The IEA estimates that China accounts for about 61% of rare earth production and 92% of their processing. The US is estimated to have relied on China for as much as 70% of its rare earth minerals between 2020-2023.

Trump’s latest announcement may also help explain why he has been so keen to get Ukraine to agree to a mineral deal and his ambition to control Greenland – as both countries are believed to have material reserves. Last week, Trump contentiously signed an executive order allowing US companies to mine for rare earth minerals on the seabed in the US and international waters, notably the Pacific Ocean. This undermined the historic UN agreed process overseen by the International Seabed Authority (ISA).

By comparison to Trump’s tariff strategy, China has used export controls on critical minerals. China has already put in place a US export ban on gallium, germanium, and antimony. In the latest move, China has added a further seven rare earth minerals including Terbium. These are all key raw materials for the defence, robotics, and energy industries. The automotive sector which, is transitioning to electric vehicles, would also be affected and there is already a battle underway between America’s Tesla and China’s BYD for domination of this global market.

Regardless of whether America and China can reach some sort of trade deal and avoid the most draconian tariffs, the technological trade war looks as if it is here to stay and rare earth minerals will remain a key strategic bargaining chip.

What have we been watching?

Another week on the Trump market roller coaster, but has he blinked first again due to US market volatility? US equities rallied nearly 5% last week as Trump seemed to backtrack on the Chair of the Federal Reserve and China tariffs!

 

US markets had slumped over the Easter break as Trump took another swipe at Federal Reserve (Fed) Chair Jerome Powell, warning of a US slowdown ‘unless Mr. Too Late, a major loser, lowers interest rates NOW.’ Rumours circulated that the Trump administration was looking at whether there is a process by which it could remove Powell ahead of his term ending in May 2026. US investors became alarmed that such an action would undermine and damage the independence of the Fed with ramifications for US bond markets and the Dollar. This uncertainty saw gold hit a record high while the US Dollar fell to a 3-year low against other major currencies. This market volatility forced Trump to backtrack by saying that he has ‘no intention of sacking Powell.’

Meanwhile, the Whitehouse reported that it had trade proposals on paper from 18 countries while the entire US trade team met with 34 countries last week. The UK is amongst these and the government remains hopeful of a trade deal and has signalled the UK could lower tariffs on US car imports from 10% to 2.5%.  Hopes that Trump will slash Chinese tariffs to de-escalate the current situation and avert a full-blown trade war, saw markets rally following the Easter break. However, Beijing insists that no phone call has recently taken place between Trump and Xi Jinping, while a spokesperson said the ‘US and China are not conducting consultations or negotiations on tariff issues.’      

This all coincided with the start of the latest US quarterly earnings season. The week ahead will be a key test for US equities with 40% of the main index constituents by market capitalisation reporting earnings, including giants such as Amazon, Apple, Meta, and Microsoft. Meanwhile, US business activity hit a 16-month low in April as the ‘flash’ PMI reading dropped to 51.2.

Trump tariff uncertainty was reflected in the latest forecast from the IMF, which warned that the ‘global economic system that has operated for the last 80 years is being reset.’ The IMF lowered its global economic growth forecast for 2025, from 3.3% to 2.8% and cut its 2026 estimate to 3%. The IMF said that ‘faced with increased uncertainty, that many firms’ initial reaction will be to pause, reduce investment and cut purchases.’ The largest growth downgrade by the IMF was to the US economy which is now forecast to grow by 1.8% in 2025, down from its previous estimate of 2.7%. The IMF also warned that there was a 40% probability of a US recession this year. It is worth noting that the IMF has tended to be behind the curve with its forecasts, as some US investment houses already have a much higher probability of a US recession!

 

 

China warned other countries about doing tariff deals with the US that might threaten China’s trade position. The Trump administration then attempted to play down trade tariff concerns as US Treasury Secretary Scott Bessant said that the current tariff situation with China is ‘unsustainable’ and that he saw a ‘de-escalation.’ Trump then said he thinks the US will make a trade deal and that high tariffs on China ‘will come down substantially.’ The catalyst for this change in stance was thought to be a private conversation between the heads of some of America’s leading retailers including Walmart and Target which, warned of empty shelves in a matter of weeks. For example, the Port of Los Angeles, the main route of entry for goods from China, reports Chinese shipments are down by a third compared with a year ago.

 

 

Last week, Putin offered to halt his invasion of Ukraine across the current front line as part of efforts to reach a peace deal with Trump. Under peace proposals the US would apparently recognise Russia’s ownership of the Crimean Peninsula as well as acknowledging its de-facto control over the four regions of eastern Ukraine it currently occupies. However, on Truth Social, Trump said the Russian attacks on Ukrainian cities ‘makes me think he doesn’t want to stop the war, he’s just tapping me along, and has to be dealt with differently, through ‘Banking’ or ‘Secondary Sanctions?’

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  Brent oil which had fallen to $62 on trade war fears rallied to $67.

Finally, talking of rare earth mineral and defence technologies, the war in Ukraine has seen a further evolution in warfare with drones quickly becoming a gamechanger. This, in turn, has led defence manufacturers to develop methods to combat them. The MoD has recently successfully tested the ‘RapidDestroyer’ developed by French defence firm Thales, that uses a high-power radio frequency to disable or fry the electronics of swarms of drones at a distance. Sadly, for Ukraine, the technology is still in early stage of development.

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