China puts Trump in a corner. Every way out hurts.

Beijing’s escalation of the trade fight has put the Trump administration on the backfoot at a moment of weakness. China’s actions show that the U.S. is vulnerable to economic pressure, and China has forced the administration to choose between further escalation or a humiliating climbdown.

The stock market’s sharp selloff Friday indicates that investors are bracing for real pain ahead.

The latest tensions kicked off Thursday, when China unveiled new export controls that would require government approval for overseas sales of many products containing rare earths and for some lithium-ion batteries. U.S. and global tech, defense, and automotive firms need those materials, which are difficult to source outside China. The new rules would go into effect Dec. 1.

Trump said on Friday he would respond with by raising China tariffs by an additional 100% on Nov 1. The U.S. currently imposes 55% tariffs on an array of Chinese imports, which were worth $440 billion in 2024.

Before Trump’s announcement, the Nasdaq Composite finished down 820 points on Friday, while the yield on the 10-year Treasury yield declined by a nearly tenth of a percent. A broad dollar index fell more than half a percentage point.

The message is clear: China has the capacity to hurt the tech firms that have led the stock market to recent records.

The Trump administration is in a difficult position. It reopened the trade war earlier in the year with its sharply higher tariffs on Chinese imports in an effort to force China to adopt a more friendly trade posture to the U.S. That fight came to a head in April, when fears of a sudden stop to the global economy caused the Treasury market to seize up. The Trump administration backed down and entered talks with China.

The Trump team has declared victory almost every time U.S. and Chinese negotiators have met in 2025, but it isn’t clear how much has been won through that process. China has halted its purchases of U.S. soybeans, leaving American farmers without access to one of their most important export markets. On Thursday, the Trump administration said that it was deferring plans to provide financial aid to farmers in light of the shutdown, saying Democrats were to blame for refusing to reopen the government.

Democrats have pushed back, saying Republicans aren’t negotiating in good faith.

Farmers have been furious that the U.S. has opted to bail out its political ally in Argentina, President Javier Milei, even though Argentine farmers continue to sell their soybeans to China.

Trump has been left with difficult choices. He could try to find ways to funnel cash to farmers, but that would undermine his arguments against Democrats. Similarly, backing off trade restrictions on China would undermine the effort to threaten that country into submission.

Instead of taking those off-ramps, Trump is choosing to escalate, leaving the stock market and potentially advanced U.S. industries to pay the price.

The two sides will still likely talk, but not at the highest level. Trump and Chinese leader Xi Jinping were set to meet next week, but Trump cancelled that meeting. Still, some kind of resolution is likely to the immediate impasse, because the costs of doing otherwise would be great: Hundreds of billions in trade is at stake.

Besides, Beijing wants something from Trump, though it isn’t entirely clear what. China could demand the U.S. relax its own export controls, which limit which advanced semiconductors and other tech equipment may be sold in China.

The Biden administration ramped up those restrictions, saying they were nonnegotiable matters of national security. Under Trump, the U.S. has been more willing to trade away export controls as part of the tariff negotiations.

In the longer run, the question is who can unwind their dependency on the other faster. China is investing in domestic semiconductor manufacturing in an effort to free itself of its need for technology from the U.S., Taiwan, and other American allies.

The U.S. will likely eventually be able to get out from under China’s chokehold on rare earths, says Geoffrey Gertz, senior fellow with the Energy, Economics, and Security Program at the Center for a New American Security and a former director for international economics at the White House under President Biden. The playbook is clear, though it will take time, Gertz says.

It is less clear that China will be able to replicate the entire supply chain to create the most advanced semiconductors, which would require creating domestic versions of cuttin- edge chip design and fabrication equipment.

“We still have the advantage. But China has demonstrated a clear willingness and ability to invest what it takes and carry through on plans where the U.S. and the West hasn’t shown that follow-through," Gertz says.

So China is seizing its moment. And for now Trump—and Americans more broadly—are feeling the pain.

–Reshma Kapadia contributed reporting.

Write to Matt Peterson at matt.peterson@dowjones.com