All is Unfair in International Trade and War: How China’s Unlawful Export Policy on Rare Earth Metals Forced the Trump Administration into a Fragile Ceasefire

by Abriana Malfatti, Associate Member, University of Cincinnati Law Review Vol. 94

I. Introduction

In many ways, the trade relationship between the United States and China reads like a Shakespearean tragedy. What seemed like a fruitful relationship has now wilted during the recent trade war. When the United States and China began their trade relationship in 1979, it seemed mutually beneficial.¹ The United States experienced an increase in goods imported from China, going from $100 billion in 2001 to $400 billion in 2023.² In return, China was able to adjust its inflation over the years and increase the size of its economy fivefold.³ However, in 2004, just three years after China joined the World Trade Organization (“WTO”), the relationship soured when the George W. Bush administration began to accuse China of failing to comply with many of the WTO rules.⁴ Trade problems with China continued throughout the years, but reached a turning point when President Donald Trump initiated a trade war in 2018 by issuing wide sweeping tariffs on China.⁵ Trade relations between the United States and China caused whiplash for those watching with its never-ending “tit-for-tat” retaliation that burdened American consumers with higher prices.⁶ The trade war recently heated up when China introduced its new and most restrictive trade policy regarding rare earth metals.⁷ China’s new policy on rare earth metals finally forced the United States into a trade deal on October 30, 2025, that saw the Trump administration roll back many of its steadfast trade policies.

This Article argues that China’s licensing restrictions on rare earth metals are a violation of the Most Favored Nations Principle (“MFN”) of the General Agreement on Tariffs and Trade (“GATT”). Part II breaks down the current trade war between the United States and China and explains the mechanism for settling a dispute in the WTO. It will then explain the MFN principle and analyze international trade cases that apply the MFN. This article will also explain China’s licensing restrictions and the new trade deal between China and the United States. Part III will argue that China’s new licensing restrictions both violate the MFN and use the United States’ own unfair trade policies against it. Part III will then explain why the new trade deal is best thought of as a ceasefire rather than an end to the trade war. Finally, Part IV will summarize those conclusions, reasoning that the new trade deal does not solve the issue of rare earth metals for the United States.

II. Background

A. World Trade Organization and Most Favored Nations Principle

The Dispute Settlement System (“DSS”) of the WTO is the mechanism by which the organization enforces international trade law and attempts to settle conflicts through negotiations.⁸ DSS begins when a party requests consultations by alleging a complaint against another nation.⁹ It will then establish a three-member panel to review the case and issue a report.¹⁰ The panel will then circulate its report to other members of the WTO.¹¹ The parties can then appeal the panel’s decision to the Appellate Body.¹² The Appellate Body of the WTO is a panel made up of seven members who each serve four-year terms.¹³ The Appellate Body’s decision is final, and DSS will implement its recommendations.¹⁴ The nation in violation is then expected to agree and implement the rulings of the DSS; if not, the nation faces the possibility of additional arbitration that may result in suspension, sanctions, or, as a last resort, retaliation.¹⁵

The MFN is one of the foundations guiding the WTO.¹⁶ The WTO relies upon the MFN to ensure transparency and encourage negotiations between nations.¹⁷ It is contained in Article I of GATT, which states that, “any advantage, favour, privilege or immunity granted by any contracting party to any product originating in or destined for any other country shall be accorded immediately and unconditionally to the like product originating in or destined for the territories of all other contracting parties.”¹⁸ In other words, to ensure fair trade, a nation should not discriminate against other sovereigns by offering equal trading opportunities to everyone in the global economy.¹⁹ The MFN is one of the bedrocks of the WTO, though it is not absolute.²⁰ Recently, nations have utilized Article XXI as a favored exception.²¹ The Article permits a violation of GATT for legitimate national security concerns.²² Nations rarely utilized the national security exception in the WTO before 2017, when the first Trump administration used it to justify 30 technical barriers to trade.²³ Since then, other nations began to utilize the security exception.²⁴ The sudden uptake in the exception led scholars to argue that Article XXI has become less of a legitimate exemption and more of an excuse to justify unfair trade practices that are unrelated to national security concerns.²⁵

B. WTO cases that apply MFN

This section will explain two relevant cases where the DSS applies the MFN treatment. In DS139, the DSS holds that the MFN applies to policies that have a discriminatory effect de facto as well as polices that discriminate on its face de jure. In DS615, China alleges that the United States violated MFN regarding its end-user restrictions on semiconductors.

1. DS139: Canada — Certain Measures Affecting the Automotive Industry

In DS139, Japan requested consultations with Canada, alleging that Canada’s duty-free customs exemptions relating to the Agreement concerning the Automotive Products between the Government of Canada and the Government of the United States (“The Auto Pact”) violated MFN of Article I:1 of GATT.²⁶ The Auto Pact is a combination of treaties between the United States and Canada, most notably the Motor Vehicles Tariff Order and Remissions Orders.²⁷ Japan argued that Canada’s tax-free policy was not available to all nations, but offered favorable trade exceptions to a small number of manufacturers from certain eligible countries.²⁸ While the duty-free restrictions did not discriminate on their face, two of the policy requirements, the Canadian Value Added content requirement (“CVA”) and the manufacturing sales requirement, de facto discriminated by only making certain manufacturers party to the Auto Pact eligible for the exception.²⁹ Taken together, these agreements create a standard for qualifying for a duty-free exception that is unrelated to the imported product itself.³⁰ To support its claim, Japan cites statistics showing that Canada accepted 96% of duty-free imports from Sweden, and 94% from Belgium, but only accepted under 30% from European imports, 5% of imports from Korea, and 3% of imports from Japan.³¹

In response, Canada argued that even if the import exceptions had a discriminatory effect, it was justified under Article XXVI, which permits a country to violate the MFN to encourage free trade agreements between regional nations.³² The Appellate Body found that Canada’s CVA requirements were inconsistent with Article I:1 of GATT, reasoning that, “Art. I:1 covers not only de jure but also de facto discrimination, and that the duty exemption at issue in reality was given only to the imports from a small number of countries in which an exporter was affiliated with eligible Canadian manufacturers/importers.”³³ In addition to this, the Appellate Body also concluded that Canada could not use Article XXVI as an exception because the import exceptions also favored nations outside of the regional trade agreement.³⁴

2. DS615: United States — Measures on Certain Semiconductor and Other Products, and Related Services and Technologies

In December of 2022, China requested consultations with the United States in response to its export restrictions on semiconductors.³⁵ China complained that the United States’ export restrictions violated Article I:1 of GATT by including an end user restriction in its Export Admissions Regulations (“EAR”) that discouraged American companies from conducting business with China regarding the production of semiconductors.³⁶ The new EAR clauses limited American Companies’ ability to gain a license to export semiconductors if the end use of its products were in China.³⁷ China argued that these restrictions violated Article I:1 by “failing to accord immediately and unconditionally the advantage, favor, privilege, and immunity granted to products destined for other WTO Members to like products destined for China.”³⁸ The United States accepted China’s consultations but claimed that it was exempt from MFN due to national security concerns under Article XXI of GATT.³⁹ In January of 2025, China refiled, wishing to enter consultations with the United States over the EAR licensing restrictions.⁴⁰ The case is still in the discussion phase and has not entered adjudication by a panel.⁴¹

C. Trade War Between the United States and China

During a trade war, nations in dispute attack each other’s economies through predatory trade policies such as raising the price of tariffs or implementing quotas on imports and exports.⁴² In 2018, the United States began the trade war by imposing tariffs on more than $550 billion of Chinese goods.⁴³ In response, China decided to implement its own tariffs on $185 billion of goods originating from the United States.⁴⁴ The trade war cooled down during Biden’s presidency but reignited when Trump was reelected.⁴⁵ During Trump’s second term, he imposed retaliatory tariffs on Canada, Mexico, and China.⁴⁶ China quickly struck back within days by announcing its own tariffs and export controls.⁴⁷ This cycle of retaliation continued throughout 2025 but came to a boiling point when China introduced new licensing restrictions on rare earth metals.⁴⁸

Currently, China has a monopoly over the world’s rare earth metals as it controls around 70% of its mining, 90% of its separation processing, and 93% of magnet manufacturing.⁴⁹ Rare earth metals are necessary for many key industries such as health care, renewable energy, and most importantly, defense manufacturing.⁵⁰ Due to China’s “chokehold” on the market, nations are unable to quickly gain rare earth metals from other sources, as other countries have not begun mining and manufacturing at a rate that is viable to support the necessary supply chain.⁵¹ The United States relies on rare earth metals for defense manufacturing, one of its largest industries.⁵²

On October 9, 2025, China announced that it would be implementing new restrictions on its exports of rare earth metals.⁵³ Under the proposed licensing restrictions on rare earth metals, foreign companies will be required to gain a license from China if it is exporting magnets and semiconductor materials that contain at least .01% of earth metals sourced from China.⁵⁴ These rare earth metals are a key component in the defense industry; however, China also stated that under the new restrictions, it will deny licenses to foreign companies that engage in business with foreign militaries or intend to use the rare earth metals for military purposes.⁵⁵

On October 30, 2025, Trump’s trade tour in Asia ended in a new trade deal with Chinese President Xi Jinping.⁵⁶ Under the trade deal, the United States agreed to drop its 100% tariffs on China in exchange for China delaying its proposed rare earth metals policy.⁵⁷ After the meeting, China’s Ministry of Commerce confirmed that it would defer its proposed licensing restrictions on rare earth metals for a year and that the Trump administration would suspend its plans to blacklist certain Chinese firms from doing business with United States companies.⁵⁸ Further, Trump agreed to lower the tariffs regarding chemicals used in fentanyl coming into the United States from 20% to 10%.⁵⁹ Economists reasoned that China had been chasing after decreased tariffs in relation to fentanyl since July, but was finally able to leverage an agreement using rare earth metals.⁶⁰ The meeting only marks the beginning of negotiations, and neither of the countries has finalized the trade deal.⁶¹ Many international scholars and economists remain split on the issue.⁶² Some view the talks as a positive step forward regarding the trade relationship between the two nations, others view it as a temporary truce, and some critics say that the United States overplayed its hand and ultimately lost the trade war.⁶³

III. Discussion

A. China’s New Licensing Restrictions Violate the Most Favored Nation Principle and Use the United States’ Own Discriminatory Trade Tactics Against Them.

China’s Licensing Policy violates MFN because it de facto discriminates against the United States by targeting its defense industry. China’s policy is similar to Canada’s policy in DS139 because the policy appears neutral on its face by having no end user restrictions but will have a discriminatory effect on which countries will be eligible for licenses.⁶⁴ The licensing restriction on rare earth metals is discriminatory because it forbids companies from gaining a license based on what industry it is a part of. Under the licensing policy, a company will not be able to gain a license if it uses rare earth metals for military manufacturing.⁶⁵ This will disproportionality affect United States companies as the United States is the largest arms exporter and military manufacturer in the world.⁶⁶ Not allowing licensing for these products is cutting two of the United States’ largest industries completely off from their supply chain.

China will argue that the ban will affect all nations equally because it refuses to sell to any foreign military. However, in practice, when a foreign company is gaining licenses from China to use these metals, other nations will be unlikely to use the metals for military purposes. According to the Stockholm International Peace Research Institute, “The US accounted for 43% of global weapons exports between 2020 and 2024, more than four times the share of France, the world’s second-largest exporter.”⁶⁷ Other countries will not be using a license to manufacture weapons, because they already buy their weapons from the United States. Thus, China’s policy is discriminatory because it does not target one industry equally across the world; it targets an industry that the United States leads in exports.

Additionally, China intends to harm the United States because it knows it will hurt its defense industry, which it will inevitably benefit from. In April, China decided to implement an export ban on seven rare earth metals as a direct response to Trump’s retaliatory tariffs.⁶⁸ China showed an interest in eventually surpassing the United States in the defense industry as it has begun increasing its manufacturing of advanced weapon technology at a rate that is expected to be five to six times faster than the United States.⁶⁹ China’s paused licensing restrictions violate MFN because they target a leading industry of the United States over other industries. China’s past actions during the trade war indicate that it intended to discriminate against the United States in response to its tariffs, in addition to its overall plan to eventually surpass the United States as the leading arms exporter.⁷⁰

Moreover, China’s licensing restrictions use the same unlawful policy that it accuses the United States of in DS615 as a negotiation tactic in the trade war. The United States attempted to target China as part of the battle over control of semiconductors by implementing an end user ban on the nation, while also making it harder for American companies to gain an export license if they intend to sell to Chinese companies.⁷¹ China’s licensing restrictions, while not de jure discrimination like the United States, have the same effect as an end user restriction. China attempted to use national security reasons as justification for its new licensing restriction, similar to how the United States argued justification under Article XXI.⁷² However, there is no legitimate national security concern for either of the policies; rather, both countries seek to cover up the fact that it openly violates international law to gain an upper hand in the trade war.⁷³

The only difference between the two tactics is that China successfully used the violation to enter a favorable trade deal with the United States. Both nations suffered from the trade war and failed to establish successful deals in the past.⁷⁴ China sought to lower the tariffs on fentanyl for months, a policy that Trump said he would not budge on.⁷⁵ When Trump left for the trade tour in Asia, the licensing restrictions were a hot topic due to the detrimental effect that they would have on the American defense industry.⁷⁶ In the new deal, Trump moved by lowering the rate from 20% to 10%.⁷⁷ The fact that Trump loosened the polices he was steadfast on may signal either a desire to cooperate with China in the future or give China a newfound confidence moving forward, as it now knows that rare earth metals can be used to get the United States to fold.⁷⁸

B. The New Trade Deal Should be Thought of as a Ceasefire and Does Not Solve the Problem of Rare Earth Metals.

While it might appear that the new trade deal is a positive step in the right direction between the two nations, it should be thought of as a ceasefire and not an end to the trade war. Essentially, all the new trade deal did was roll back the detrimental trade policies of 2025, but all mechanisms are still on the table, meaning that the war can easily reignite if a nation pulls out of the deal. The United States and China have a history of rekindling trade tensions after an initial deal.⁷⁹ For example, during Trump’s first term he attempted to negotiate an arrangement with China where it would buy $200 billion worth of goods from the United States.⁸⁰ However, China never lived up to its end of the bargain causing the trade war to rage on.⁸¹ Now, the United States is in a parallel situation as the new trade deal offers promises with no indication of a follow-through. Without any manifestation that either side will carry out their promises, both sides can easily resume their predatory trade practices whenever they please. This makes no real difference in the overall trade war, as companies and consumers are left holding their breath, waiting for either side to renege on their end of the deal.

Further, the new trade deal does not address the issue of rare earth metals and will leave the United States in the same predicament later down the road. For instance, on Air Force One, Trump recently said, “Now, every year we’ll renegotiate the deal, but I think the deal will go on for a long time, long beyond the year. But all of the rare earth has been settled, and that’s for the world.”⁸² However, the terms of the trade deal indicate that the opposite is true. The trade deal agrees to a year-long pause, and it does nothing to actually settle the rare earth metals policy for the United States or the world. Furthermore, pausing the policy for a year will not change the global supply and demand of rare earth metals. To settle the dispute over rare earth metals, China would need to ensure that it will continue to supply the metals to the United States at fair prices and not threaten to rip away a company’s license whenever it is in a dispute with the United States. Therefore, without a long-term plan for negotiation tactics, this deal is not a solution because it only provides temporary relief, making it inevitable that the United States will find themselves in the same position regarding rare earth metals in the future.

IV. Conclusion

China’s licensing restrictions on rare earth metals violate the MFN principle of GATT. While unlawful, China was able to leverage the United States’s same discriminatory trade policies against them as a tactic to force it into a ceasefire. As a result, China effectively reversed most of the retaliatory tariffs that Trump implemented at the start of his second term.⁸³ The trade war may have reached a standstill, but tensions could spark at any point. The current trade deal between the United States and China is not the savior that the Trump administration is advertising it as. The history of trade deals between the two nations is built on empty and broken promises, and the new trade deal fails to address a long-term strategy that will allow the two nations to trust one another. With both sides refusing to abide by GATT, the United States needs to build up its own supply chain of rare earth metals to decrease its dependence on China.⁸⁴ If the United States fails to act and see substantive results, it will leave its companies and consumers vulnerable and open to attack by China’s destructive trade policies.

Cover Photo by William William on Unsplash

Abriana Malfatti

References

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64
See Appellate Body Report, Canada—Certain Measures Affecting the Automotive Industry, ¶ 78, WTO Doc. WT/DS139/AB/R (adopted May 31, 2000).
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Baskaran, supra note 48.
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Joe Gould and Paul Mcleary, Hegseth to unveil arms sale overhaul, Politico (Oct. 29, 2025, at 15:25 EDT) https://www.politico.com/news/2025/10/29/hegseth-to-unveil-arms-sale-overhaul-00627813 (On file with the University of Cincinnati Law Review).
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Anna Cooban, America is the world’s biggest arms exporter. Europe should know, CNN (Mar. 10, 2025, at 8:16 EDT) https://www.cnn.com/2025/03/10/business/us-weapons-exports-europe-intl [https://perma.cc/G6CN-Z9A5] (quoting the Stockholm International Peace Research Institute).
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70
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71
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72
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73
Id.
74
Council on Foreign Relations Editors, supra note 1.
75
Id.
76
Baskaran, supra note 48.
77
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78
See id. While Trump rolled back a lot of his policies, he did not completely bend to XI Jinping’s will in regard to AI Chips by not agreeing to the sale of advanced AI chips between China and Nvidia Corp. Id.
79
Council on Foreign Relations Editors, supra note 1.
80
Id.
81
Id.
82
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84
Financial Times Editorial Board, supra note 54.; Josh Funk and Didi Tang, Trump administration is investing in US rare earths in a push to break China’s grip, Associated Press (Aug. 27, 2025, at 00:02 EST) https://apnews.com/article/rare-earths-critical-minerals-trump-china-tariffs-edf8ff79ec97d7245f64afa9f9ac713a# [https://perma.cc/Q5Y8-DPRW]. To attempt to decrease its dependence on China, the Pentagon has invested $400 million in MP materials to begin mining and producing rare earth metals. While this is a step in the right direction to decrease the United States’ dependence on China, many experts still warn that the United States’ domestic mining capabilities are still years away. Id.