Global markets have continued to tumble as anxious investors anticipate Beijing may soon retaliate against Washington in their protracted trade war.

Key points: Beijing is expected to retaliate against Washington by restricting its supply of rare earth minerals

Beijing is expected to retaliate against Washington by restricting its supply of rare earth minerals China is a dominant supplier, accounting for 80pc of rare earth imports to the US

China is a dominant supplier, accounting for 80pc of rare earth imports to the US Rare earths are used to make mobile phones, electric cars, and military equipment

With the dispute showing no signs of ending quickly, one Australian mining company has emerged as a rare winner in the trade conflict.

Rare earths miner Lynas Corporation saw its share price surge to its highest value in more than five years.

By 11:12am (AEST), the shares of Western Australia-based Lynas had jumped 3.6 per cent to $2.86, taking its market value beyond $1.8 billion.

Its stock has jumped by more than 80 per cent since the year began.

China is expected to restrict its supply of rare earth minerals to the United States, instead of firing back with tariff increases.

If Beijing follows through on threats to cut supply in retaliation for Washington's trade sanctions, it could prove to be severely disruptive to the US military and key industries.

Lynas, which operates a mine at Mount Weld, holds the unique position of being the only major producer of rare earths outside China — with the escalating trade concerns only increasing its geopolitical importance.

China dominates rare earths market

Rare earths are a group of 17 chemical elements — of which China is the world's dominant supplier — and they are used in a wide range of electrical goods, including mobile phones, electric cars, high-tech consumer electronics and US military equipment.

China accounted for 80 per cent of rare earth imports by the United States between 2014 and 2017, and rare earths were excluded from recent US tariffs along with some other critical Chinese minerals.

China is a major supplier of rare earth minerals, including lanthanum, used in electric car batteries. ( Reuters, file photo )

So far, the Chinese government has not officially confirmed it would restrict rare earths sales to the US.

However, state media has strongly implied that is how China will strike back at the Trump administration.

In a commentary headlined, "United States, don't underestimate China's ability to strike back", the official People's Daily noted America's "uncomfortable" dependence on rare earths from China.

"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," it wrote.

"We advise the US 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 expression "don't say we didn't warn you" is generally only used by official Chinese media to warn rivals over major areas of disagreement, for example ahead of a border war with India in 1962, and before China invaded Vietnam in 1979.

Adding to worries, China's Huawei Technologies filed a lawsuit against the US Government late on Tuesday (local time) in its latest bid to fight sanctions from Washington.

Earlier in the week, US President Donald Trump remarked that he was "not yet ready" to make a trade deal with China.

Mr Trump also said that US tariffs on Chinese imports could still "go up very, very substantially, very easily".

Market snapshot at 7:50am (AEST): ASX SPI futures -0.5pc at 6,399, ASX 200 (Wednesday's close) -0.7pc at 6,440

ASX SPI futures -0.5pc at 6,399, ASX 200 (Wednesday's close) -0.7pc at 6,440 AUD: 69.17 US cents, 54.77 British pence, 62.1 euro cents, 75.78 Japanese yen, $NZ1.06

AUD: 69.17 US cents, 54.77 British pence, 62.1 euro cents, 75.78 Japanese yen, $NZ1.06 US: Dow Jones -0.9pc at 25,126, S&P 500 -0.7pc at 2,783, Nasdaq -0.8pc at 7,547

US: Dow Jones -0.9pc at 25,126, S&P 500 -0.7pc at 2,783, Nasdaq -0.8pc at 7,547 Europe: FTSE 100 -1.2pc at 7,185, DAX -1.6pc at 11,838, CAC -1.7pc at 5,222, Euro Stoxx 50 -1.5pc at 3,298

Europe: FTSE 100 -1.2pc at 7,185, DAX -1.6pc at 11,838, CAC -1.7pc at 5,222, Euro Stoxx 50 -1.5pc at 3,298 Commodities: Brent crude -0.7pc at $US69.63/barrel, spot gold flat at $US1,279.88/ounce, iron ore flat at $US106.18

Markets react to an 'ugly stew'

On Wall Street, the Dow Jones index dropped 221 points, or 0.9 per cent, to 25,126.

The broader S&P 500 lost 0.7 per cent, while the tech-heavy Nasdaq was down 0.8 per cent.

New York's benchmark indices have tumbled by about 6 per cent in the last month.

The uncertainty in markets have pressured investors to dump stocks and seek safety in US Government debt.

This led to an inversion of the yield curve — between short-term (3-month) and long-term (10-year) Treasury bonds — regraded by market analysts as a precursor to a potential recession.

Benchmark US 10-year bond yields touched an intraday low of 2.21 per cent, its lowest level since September 2017.

Federal funds futures indicated that traders saw a 60 per cent chance the US Federal Reserve would lower policy rates by 0.25 percentage points at its mid-September meeting.

"Now we are starting to see investors react to lower growth expectations," said Jack Ablin, chief investment officer at Cresset Capital Management.

"It is a combination of this protracted trade dispute, lousy data and Fed caution.

"Investors are putting all those ingredients in a hat and coming up with a pretty ugly stew."

European markets were hit even harder than US stocks, with London's FTSE falling 1.2 per cent.

Germany's DAX and Paris' CAC indices fell sharply by 1.6 and 1.7 per cent respectively.

ABC/Reuters