US Weighs Sweeping Software-Based Export Restrictions Against China in Rare Earth Dispute

Potential Software Export Restrictions

The Trump administration is reportedly weighing unprecedented export controls that would restrict shipments to China of any products containing or manufactured using US software, according to multiple sources familiar with the matter. The proposed measures would affect a wide range of goods from laptops to jet engines and represent a potential dramatic escalation in the ongoing trade dispute between the world’s two largest economies.

Potential Software Export Restrictions
Broad Scope and Potential Impact
Administration’s Evolving Strategy
International Context and Precedents
Chinese Response and Broader Trade Context

Sources indicate the administration is considering the move as retaliation against Beijing’s latest round of rare earth export restrictions, which are set to take effect November 1. According to reports, the plan would make good on Donald Trump’s threat earlier this month to bar “critical software” exports to China by restricting global shipments of items that contain US software or were produced using US software.

Broad Scope and Potential Impact

The proposed restrictions could have sweeping implications for global trade, analysts suggest. “Everything imaginable is made with US software,” one source reportedly stated, highlighting the potentially vast scope of the action under consideration. The measure, if fully implemented, could disrupt technology supply chains and come at a significant cost to the US economy, according to economic analysts.

Market reaction to the news was immediate, with US stock indexes briefly extending losses after reports surfaced. The S&P 500 was reportedly down 0.8% and the Nasdaq 1.3% lower before paring their losses, according to market data.

Administration’s Evolving Strategy

The report states that administration officials could potentially announce the measure to increase pressure on China while stopping short of full implementation. Narrower policy proposals are also reportedly under discussion within the administration, reflecting internal debates about the appropriate approach to China trade relations.

According to sources, the fact that such comprehensive controls are being considered demonstrates the administration is weighing a significant escalation in its confrontation with China, even as some within the US government favor a more measured approach. The White House declined to comment on the reports, while the Commerce Department, which oversees export controls, did not respond to requests for comment.

International Context and Precedents

If adopted, the measures would resemble restrictions the Biden administration previously imposed on Moscow following Russia’s 2022 invasion of Ukraine. Those rules restricted exports to Russia of items made globally using US technology or software, establishing a precedent for such extraterritorial application of US export controls.

The timing of the potential escalation is particularly sensitive, coming just three weeks before a previously announced meeting between Trump and Chinese President Xi Jinping in South Korea. The consideration of new restrictions also follows a pattern of fluctuating trade policies toward China, with the Trump administration having previously imposed and then removed restrictions on AI chips and chip design software exports.

Chinese Response and Broader Trade Context

A spokesperson for the Chinese embassy did not comment specifically on the measures under consideration but expressed opposition to what it characterized as US “unilateral long-arm jurisdiction measures.” The spokesperson vowed China would “take resolute measures to protect its legitimate rights and interests” if the US proceeds with actions Beijing views as inappropriate.

The potential software restrictions come amid already elevated trade tensions, with Chinese imports currently facing US tariffs around 55%. According to analysts, these could potentially increase to 155% if Trump follows through on his threatened tariff hike. However, the administration’s position has appeared fluid, with Trump posting on social media following his initial threats that “The U.S.A. wants to help China, not hurt it!!!”

This reporting is based on information from sources familiar with the matter and previous public statements from administration officials.