China produces about 3/4 of the worlds neodymium magnets and those are the strongest permanent magnets. As such they are critical components for all sorts of electrical devices.

https://en.wikipedia.org/wiki/Neodymium_magnet#Applications

China has the monopoly or practically the monopoly on many rare earth extraction and refinement, as well as a strong presence in the manufacture of components out of it. China’s industrial strategy has identified critical industries for the 21st century and is building to become the global leader in all of them. China is way past the point of letting the US bully it and so they are calling Trumps bluffs.