Xi and Trump: "You have the chips, I have the rare earths"

The rivalry between the US and China has been, for more than a decade, the central axis of the global economy and world geopolitics. On one side, the current hegemonic power seeks to preserve its status and control of technological and financial flows, and on the other, a rising power with a population and educational base that propels it towards global leadership. History shows that when an emerging power grows faster than the dominant one, conflict is almost inevitable. It is a trade and technology war centered on the dispute for control of the strategic supply chains of the digital economy. On one side are the chips, the brain of the technological age and the 'new oil' of the digital economy, under American control, and on the other, rare earth elements, the lifeblood of this entire technological sector, the 'new gold', which is concentrated in China. Whoever dominates the former controls processing and innovation, but whoever controls the latter holds access to the raw material that allows everything to function.

In semiconductors, the US and its allies maintain a structural advantage. American companies dominate more than 85% of global chip design and virtually all design software. The most advanced production—below five nanometers—is concentrated in Taiwan and South Korea, in the hands of TSMC and Samsung. Both depend on ASML, the Dutch company that produces the only extreme ultraviolet (EUV) lithography machines capable of designing circuits at a scale of a few atoms. Without these machines, it is impossible to efficiently manufacture chips of three nanometers or less. China, by political decision of Washington and The Hague, is prevented from accessing this technology.

This near-atomic scale—three nanometers are equivalent to about fifteen silicon atoms, the base material of semiconductors—marks the physical limit of current engineering. Each new technological leap reduces energy consumption and exponentially increases computing capacity, fueling artificial intelligence, defense, and high-performance computing. Controlling this frontier is, ultimately, controlling the digital future.

China, in contrast, dominates the other end of the chain: the material base. It holds about 60% of the world's rare earth production and almost 90% of global refining and processing capacity. In the case of heavy rare earths—crucial for high-performance magnets, lasers, and military sensors—Chinese dominance exceeds 90%. Beijing is also the world's leading producer of permanent magnets used in electric motors and wind turbines. This integration, from ore to final product, is a form of power that is as effective as it is discreet.

Beijing has already shown that it can transform this position into a geoeconomic weapon. The restrictions on the export of gallium and germanium in 2023 and 2024, essential elements for semiconductors and solar panels, were a clear sign that China also holds a structural trump card.

The meeting between Xi Jinping and Donald Trump, held on October 30th in Busan, confirmed this inevitable interdependence. Both leaders understood that, despite their structural rivalry, they are destined to understand each other. The summit resulted in a one-year trade truce, suspending new tariffs and retaliatory measures, as well as a mutual commitment: Beijing will maintain the flow of rare earth exports and resume purchases of American soybeans, while Washington will reduce tariffs on Chinese products and postpone new restrictions on technology companies from the Asian country. A temporary suspension of reciprocal tariffs on port logistics and maritime transport was also agreed upon, easing pressure on global supply chains. Although details are limited and mistrust remains, the Busan summit translated into a 'tactical ceasefire', a recognition that global economic stability depends on coexistence—not rupture—between the two largest powers.

However, China's excessive use of this advantage could be counterproductive. The more predictable the restriction, the sooner the US, Europe, and Japan will seek alternative sources in Australia, Africa, or Latin America. Even so, diversification is slow and expensive. Opening a mine takes years, and a refinery can take almost a decade to become profitable, while a political decision in Beijing can change prices and flows in a few weeks.

On the American side, the response, particularly accelerated at the beginning of this year by Trump, combines containment and reindustrialization. Washington has reinforced export controls on chips and pressured allies to align with the restrictions. Simultaneously, it is attempting to rebuild domestic capacity through the CHIPS Act and attract TSMC and other foundries to American soil. It is an expensive strategy dependent on engineers, who are in short supply precisely where China is increasingly demonstrating its demographic and educational strength. The Busan meeting reinforced this strategy: Trump promised to accelerate incentives for domestic semiconductor production and expand public funding for technical training, in an attempt to reduce structural dependence on Asia.

China produces approximately five million graduates annually in science, technology, engineering, and mathematics, ten times more than the US. This human capital could be the true multiplier of its technological ambition. The country distinguishes itself from the former Soviet Union here: it has invested in education and innovation, but without completely stifling economic incentives. It allows citizens to become wealthy—as long as they do not challenge political authority—and recognizes that wealth creation stems from the freedom to undertake ventures and rewarded merit. Inequality is seen as an economic engine and is tolerated as long as mobility and the expectation of progress exist. The Chinese state also promotes a form of controlled, but real, vertical competition between cities, provinces, and even bureaucrats. Each region is encouraged to surpass the others in growth, exports, and innovation. This internal rivalry, overseen by the central power, keeps the system dynamic and productive. Control is political, but the stimulus is economic—a combination that, so far, has worked.

In short, the US controls the technological chain, while China dominates the material base that sustains it. The former seeks to preserve hegemony, the latter wants to achieve it. The dispute over chips and rare earths is just the tip of the iceberg in this power transition. And, looking at the pace of Chinese education, innovation, and social cohesion, the question is no longer "if" there will be change, but when.