The trade war between the US and China is heating up, increasing the risk that China will invade Taiwan. Let us explain.
On April 11, Reuters reported the following: "Shipments of seven rare earths placed on an export control list last week by Beijing have ground to halt, three sources said, raising the risk of shortages overseas as Chinese exporters begin the long, uncertain wait for government licenses.
Shipments stopped on April 4, the sources familiar with the matter said, when Beijing restricted the export of seven rare earths and related material used across the defense, energy and automotive industries as part of its retaliation against U.S. President Donald Trump’s tariff hikes on Chinese goods."
This explains the 5.9% drop in the S&P 500 Aerospace & Defense stock price index from its record high on March 25 through Friday’s close (chart).
Last week on Tuesday, President Donald Trump and Defense Secretary Pete Hegseth vowed to hike the Pentagon budget to over $1 trillion for the first time ever (chart). 
The defense and space industry has been among the strongest components of US industrial production (chart).
The question in our minds now is: Will China risk a military confrontation with the US by invading Taiwan? President Xi might believe that the US won’t defend Taiwan militarily since that’s what Trump declared when he was campaigning for president. He said so in an October 18, 2024, interview with the editors of The Wall Street Journal.
When Trump was asked whether he would use military force against a blockade of Taiwan, he responded, "I wouldn’t have to because he [Chinese President Xi Jinping] respects me and he knows I’m f— crazy." Trump also said, "I would say: If you go into Taiwan, I’m sorry to do this, I’m going to tax you"—meaning impose tariffs—"at 150% to 200%." Trump suggested that he might even shut down trade between the US and China altogether.
Trump has already played his card by imposing a 145% tariff on China. The Chinese retaliated with a 125% tariff and now export controls on rare earths to the US.
The Chinese economy is much more vulnerable than the US economy to a trade war between the two superpowers. President Xi might conclude that now is a good time to invade Taiwan since Trump has played his tariff card and Xi needs a diversion from the calamity about to befall his economy. Geopolitical risks are rising.