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'Don't say we didn't warn you' - a phrase from China signals the trade war could get even worse

CNBC logo CNBC 5/30/2019 Yun Li
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The biggest newspaper in China explicitly warned the U.S. on Wednesday that it would cut off rare earth minerals as a countermeasure in the escalated trade battle, using an expression it only used twice in history, both of which involved full-on wars.

"We advise the U.S. side not to underestimate the Chinese side's ability to safeguard its development rights and interests. Don't say we didn't warn you!" the People's Daily said in a commentary titled "United States, don't underestimate China's ability to strike back." The paper is the official newspaper of the Communist Party of China.

The phrase "Don't say we didn't warn you" was only used two other times by the People's Daily in history — in 1963 ahead of China's border war with India and in 1987 right before China went to war with Vietnam.

"Will rare earths become a counter weapon for China to hit back against the pressure the United States has put on for no reason at all? The answer is no mystery," the paper said.

The trade conflict between the world's two largest economies escalated quickly this month with both sides slapping tariffs on billions of dollars worth of each other's goods. China's threat to restrict rare earth mineral sale to the U.S. came after President Trump blacklisted Chinese telecom giant Huawei, which led to many chip makers and internet companies cutting ties with the company.

The speculation of China's payback first surfaced when Xi Jinping visited rare earth mining and processing facilities in Jiangxi province during a domestic tour last week. A Chinese official warned on Tuesday that products made from the materials should not be used against China's development, which was seen as a veiled threat aimed at the U.S. and its technology industry.

China's rare earth materials are crucial to the production of iPhones, electric vehicles and advanced precision weapons, although the imports are a relatively small part of the $420 billion U.S. goods deficit with China.

The Chinese tabloid Global Times also said Tuesday China can play the "rare earths card, and it's "seriously considering" move.

Xi Jinping wearing a suit and tie: Chinese President Xi Jinping stands by national flags.© Provided by CNBC LLC Chinese President Xi Jinping stands by national flags.

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