A container ship at the port in Qingdao. China said Thursday that it would dramatically expand its rare earths export controls, drawing a sharp countermeasure from Trump on Friday.-/AFP/Getty Images
Finance chiefs gathering in Washington this week were ready to discuss the global economy’s surprising resilience in the face of Donald Trump’s tariff assaults – until U.S.-China trade war rhetoric reignited with the U.S. President threatening 100-per-cent duties on Chinese imports and whipsawing financial markets.
The annual meetings of the International Monetary Fund and World Bank are now certain to be dominated by questions over whether Mr. Trump’s vow to retaliate against China’s dramatically expanded export controls on rare earths will plunge the world’s two largest economies back into a full-blown trade war.
Mr. Trump has said his new tariffs and export curbs would take effect on Nov. 1 and threatened to cancel a meeting with Chinese President Xi Jinping later this month in South Korea. The duties would shatter a delicate truce crafted by Washington and Beijing over five months that brought tariffs down from triple-digit levels and prompted improved IMF global growth forecasts.
U.S. Treasury Secretary Scott Bessent on Monday sought to walk back the threat, telling Fox Business Network that he believed the Trump-Xi meeting would proceed and that there would be U.S.-China staff-level meetings this week on the sidelines of the IMF and World Bank gathering.
“The 100-per-cent tariff does not have to happen,” Mr. Bessent said. “The relationship, despite this announcement last week, is good. Lines of communication have reopened, so we’ll see where it goes.”
Mr. Bessent added that the U.S. would “stand firm” against the new global Chinese rare earths export controls, while Mr. Trump said on the Truth Social media site on Sunday: “Don’t worry about China, it will all be fine!”
The softer tone sparked a strong rebound in U.S. stocks at the start of trading in New York on Monday, with the tech-heavy Nasdaq Composite Index up more than 2 per cent and other major indexes up more than 1 per cent.
Mr. Trump’s threat on Friday sparked a big sell-off at a time when investors and top policy makers were already growing anxious about a frothy stock market fuelled by an investment boom in artificial intelligence that some officials fear could hurt future employment.
The IMF and World Bank meetings will bring more than 10,000 people to Washington, including finance ministers and central bank governors from more than 190 countries.
Martin Muehleisen, a former IMF strategy chief who is now with the Atlantic Council, said Mr. Trump’s threats may be posturing for negotiating leverage, but said they will inject volatility into the week’s proceedings.
“Let’s hope that sanity prevails. If Trump goes back to 100-per-cent tariffs on Chinese goods, there’s going to be a lot of pain in the markets for him,” Mr. Muehleisen said.
While China has some leverage over Mr. Trump due to its global dominance in rare earths, which are essential for tech manufacturing, Mr. Muehleisen said it is not in Beijing’s interest to plunge back into an environment of triple-digit tariffs.
Prior to the escalation on Friday, IMF managing director Kristalina Georgieva had touted the global economy’s ability to withstand multiple shocks, from tariff costs and uncertainty to a slowing U.S. job market, rising debt levels and rapid shifts brought on by AI’s rapid adoption.
In a preview of the IMF’s World Economic Outlook forecasts due on Tuesday, Ms. Georgieva said last week that the global GDP growth rate for 2025 would be only slightly less than the 3.3 per cent for 2024.
Based on tariff rates that were lower than initially feared – including the U.S.-China duties – the IMF in July raised its 2025 GDP growth forecast by two-tenths of a percentage point to 3.0 per cent.
“What we are seeing is demonstrable resilience in the world,” Ms. Georgieva told Reuters in an interview. “But we are also saying it is a time of exceptional uncertainty, and downside risks are still dominating the forecast. So watch it, don’t get too comfortable.”
Finance ministers from the Group of Seven industrial democracies are expected to meet on Wednesday to discuss efforts to step up sanctions pressure on Russia that is aimed at ending Moscow’s war against Ukraine.
A British government source said that Finance Minister Rachel Reeves wanted to ensure joint action with G7 and European Union countries to cut Russia’s energy revenues and access to overseas assets that comply with international law. Among these options that G7 ministers will discuss is a European Union plan to use Russian frozen sovereign assets to back a loan of 140-billion euros (US$162-billion) to Ukraine.
The U.S. footprint at the meetings will be large, extending from tariff discussions to Mr. Bessent’s calls for the IMF and World Bank to pull back from climate and gender issues to focus on their core missions of financial stability and development. The meetings will be the public debut for Dan Katz, the IMF’s new No. 2 official.
Member countries will be watching to see how Mr. Katz, a former investment banker who was Mr. Bessent’s chief of staff, carries out the U.S. Treasury chief’s agenda, which also calls for stronger IMF criticism of China’s state-led economic policies.
The U.S. Treasury’s market intervention on behalf of Argentina, the IMF’s largest borrower, also will take prominence at the meetings as Argentina’s right-wing libertarian President Javier Milei will join his ally Mr. Trump two blocks away at the White House on Tuesday. The move was welcomed by Ms. Georgieva to keep Argentina’s market-based reforms on track.
But Mr. Muehleisen, the former IMF official, said the Fund risks being pushed by its largest shareholder to enforce Mr. Trump’s geopolitical goals – ratcheting up pressure on China and potentially extending more aid to U.S. allies like Argentina without adequate reforms.
“Is it really still a global, multilateral organization, or is it becoming a bit more of an appendage of the U.S. Treasury?” he said.