China may start using rare earths as a weapon in a new trade war with the United States.
The current confrontation between Beijing and Washington, implemented primarily in the economic plane, is not what can be described as a fundamentally or radically new situation. Today, the stakes are almost maximum and the measures of the parties demonstrate unequivocal readiness for the highest level of escalation, but in general, the trade war is not the first in the history of the status quo in the context of relationships between China and the United States. In the current century, there has already been a trade war between Beijing and Washington. The corresponding situation developed during the first presidential term of Donald Trump, who returned to the White House in January this year and began rapidly increasing tariffs on goods imported from the Asian country. China has imposed countermeasures. However, in addition to the possibility of retaliatory trade restrictions, Beijing has in its arsenal of potential actions some other tools, the use of which can have very painful consequences for Washington.
Less than a year after the outbreak of the first trade war between an Asian country and the United States during Donald Trump’s first term, President of the People’s Republic of China Xi Jinping visited a factory in Guangzhou, an industrial city that continues its history surrounded by hills that form an integral part of the landscape of southeastern China. On the surface, this visit might seem like something like an average or even formal event in the schedule of the country’s leader, but in fact, it had a kind of deep context. Touring the factory’s exhibition hall, Xi Jinping inspected the gray metal blocks, which did not look like the locations of anything breakthrough or advanced, which would later become a strategic factor in the context of China’s development. At that time, the head of the People’s Republic of China told officials that rare earths are a vital strategic resource. Years later, this statement recalls itself as a fair assessment of the scenarios of transformation of the situation at the global level and the position of the Asian country in the corresponding space.
In 2025, China’s dominance in the rare earths supply chain is becoming a powerful tool that Beijing can use as a kind of weapon on the battlefield in a new trade war with Washington. The minerals that the Asian country exports are used to power a wide range of products, including Apple’s iPhone and electric vehicles. These minerals are critical components of advanced technologies that will define the future. Access to relevant components significantly shapes the economic potential of countries. For this reason, rare earths are a powerful tool in the context of a trade war.
As part of an approach that considers tariffs as the main measures in the context of economic confrontation, the United States has significant opportunities, although China is not an outsider from this point of view. At the same time, Washington’s response capabilities will be minimal if Beijing decides to use rare earths as a weapon in a trade war, adhering to a strategy of maximizing the application of the appropriate option. In this case, export restrictions are implied, which will very painfully affect the prospects of the United States in the context of the development of the domestic technology sector and the maintenance country’s industry as a whole at a competitive level. Something like this is already slowly starting to happen.
Rare earths are a group of 17 elements that are more abundant than gold and that can be found in many countries, including the US. At the same time, extracting and processing these elements is complex, costly, and environmentally polluting.
For decades, the United States and other countries have depended on the supply of the mentioned processed metals from China. Data from the International Energy Agency shows that the Asian country’s share in global mined rare earth production is 61%. At the same time, the Asian country’s share of control over the processing stage is 92% of the global output.
In the current month, China, after years of indirect warnings about potential measures in response to external restrictions and tougher conditions for international economic cooperation, imposed export restrictions on seven types of rare earth minerals. This decision by Beijing was a response to Washington’s initial 34% reciprocal levies on goods imported from the Asian country.
New Chinese regulations stipulate that all companies must secure government permission for external shipments of seven minerals and associated products such as magnets.
Magnets made from rare earths enable smaller, more efficient motors and generators used in smartphones, car and jet engines, and MRI machines. They are also essential components of a whole list of big-ticket weapons, including F-35 stealth fighter jets and nuclear-powered attack submarines.
Justin Wolfers, a professor of economics and public policy at the University of Michigan, noted that China is showing that it can exert incredible economic might by being strategic and surgical and really hitting the American industry right where it hurts.
The fact that rare earths can be used as a weapon in a trade war highlights that the advanced high-tech environment existing in space of the virtual dimension of reality cannot exist without a material resource base. This base is provided by nature, which has a certain philosophical connotation in the context of thinking about humans and the limits of their power in the world of habitation. Currently, the development of digital technologies has reached significant proportions in terms of both quantitative and qualitative indicators. Against this background, it is becoming more and more true that, against the background of physical nature, virtual nature emerges. At the same time, the digital world is impossible without a material resource base. It is reasonable to assert that China in a certain sense controls the physical source of technological progress, which is the movement of mankind forward within the framework of a combination of natural resources and human intellectual abilities.
Since the first administration of Donald Trump, the United States has been trying to catch up. In this case, it implies Washington’s efforts to build up its own domestic rare earths supply chain. In a media comment, three US companies that operate in the rare earth industry space noted in a media comment that they are in the process of expanding their production capacities and sourcing materials from the allies and partners of the United States. The implementation of these efforts will take some time. The United States will not be able to quickly overcome its dependence on supplies from China. In this case, it means years of hard work. Washington will have to meet the huge demand for rare earths from major US industries.
According to media reports, the impact of Beijing’s export controls has now quickly been felt on the ground. John Ormerod, founder of rare earth magnet consultancy JOC, told reporters that shipments of rare earth magnets belonging to at least five American and European companies have been halted in China since the imposition of the mentioned controls. It was noted that the specified firms were caught off guard, which is why there is a lot of confusion on their part, and they need clarification from the authorities about what is needed to obtain export licenses.
Joshua Ballard, chief executive officer of USA Rare Earth, said during a conversation with media representatives that export controls are focused on heavy rare earths, which are 98% controlled by China. In this context, it is worth clarifying separately that heavy rare earths are less common, harder to process, and more valuable. Now companies must obtain approval from Beijing to deliver the mentioned critical materials to major American industries. Joshua Ballard stated that right now, literally, the relevant exports are being suspended. It was also noted separately that the United States does not hold a lot of back stock of this in inventory. According to Joshua Ballard, this is China’s best play. Moreover, it was overlined that Beijing does not have much leverage when it comes to tariffs on US companies, but it sure does have leverage in rare earths shipments.
Thomas Kruemmer, director of the Singapore-based mineral and metal supply chain firm Ginger International Trade and Investment, said in a media comment that export controls target not only single materials but also alloys and products where the elements are contained, even in minimal quantities. Separately, it was noted that a lot of exports now fall under the licensing system. Thomas Kruemmer also underlined that some delays are expected as exporters navigate the new system.
Data published by Chinese state media indicate that the Asian country began rare earth extraction activities back in the 1950s, but the full-fledged development of the relevant industry began in the 1970s.
Stan Trout, founder of the rare earths and magnetic materials consultancy Spontaneous Materials, said during the conversation with media representatives, China combined its low labor costs and relatively lax environmental standards with the adoption of foreign technologies. It was also noted that much of the technology the Asian country brought in was developed in the United States, Japan, and Europe. Stan Trout is confident that China has improved the mentioned technology over time.
As the volume of rare earth production increased, Beijing gradually realized the strategic importance of these minerals. Stan Trout noted that there was a recognition that this could be a very important technology for China to master.
Deng Xiaoping, the former leader of the Asian country, 1992, during a visit to one of the Chinese main rare earth production hubs in Inner Mongolia, said that while the Middle East has oil, China has rare earths. In a certain sense, the mentioned thesis partially defined the strategic ideology of an Asian country in the context of economic development. Currently, the idea declared by Deng Xiaoping, who led the economic reforms in China, has fully materialized. The Asian country dominates the entire supply chain of materials.
John Ormerod stated that despite the fact that labor costs are currently higher, China’s control over the industry has strengthened as a result of its willingness to invest in technology, research, development, and automation. It was also noted that the mentioned industry is highly capital-intensive.
In the past, rare earth magnets were produced by American companies. John Ormerod stated that over time, the mentioned firms gradually went out of business as lower-cost Chinese alternatives emerged. He also noted that the United States has lost know-how and human resource capability, and this is a very capital-intensive operation. According to him, it is currently difficult to compete with the Chinese price because of the country’s greater economies of scale and government incentives that give it an additional edge.
Between 2020 and 2023, China accounted for 70% of all US imports of rare earth compounds and metals. The relevant information is contained in the report from the United States Geological Survey. The mentioned indicators indicate Washington’s clear dependence on Beijing in the framework of shipments of rare earth metals.
It is worth noting that the latest export control measures are not the first example of Beijing using its dominant position in the industry. In 2010, China halted shipments of rare earths to Japan for almost two months. The reason for this decision was a territorial dispute between the two countries. In 2023, China imposed a ban on rare earth extraction and separation technologies.
Beijing has also restricted exports of other critical minerals, a broader category of mineral resources that are vital to the economy and global supply chains.
The media, citing experts and industry insiders, note that restrictive measures by the Asian country have left the rest of the world with a limited number of alternatives. The United States is making efforts to fill this gap. However, achieving significant results is a time-consuming and labor-intensive process.
Since 2020, the United States Department of Defense has awarded more than $439 million to establish a domestic rare earth element supply chain. Moreover, this department has set itself the goal of developing a sustainable, mine-to-magnet supply chain capable of supporting all US defense requirements by 2027.
Some American companies perceive China’s export restrictions as an opportunity to speed up domestic production. Also, the mentioned firms see this as an opportunity to strengthen the supply chain outside the Asian country.
Nicholas Myers, chief executive officer of Phoenix Tailings, a Massachusetts-based rare earth processing startup, said during a conversation with media representatives that this company has developed technology to refine rare earth minerals with zero waste, and zero emissions into metals and metal alloys, sourcing the materials from domestic ores, Canada and Australia. Currently, the mentioned firm produces 40 metric tons of rare earth metals and alloys per year. Moreover, the company plans to scale up the specified figure to 400 tons at a new facility in New Hampshire. Nicholas Myers stated that this is all domestic processing. It was also noted that the company does not rely on anything from China.
Nicholas Myers stated that the United States absolutely has the capabilities to be able to produce rare earth metals at the timelines that the country really needs it. He also noted that it is now necessary to make sure that all the customers and all the policymakers are focused on supporting the industry to really scale up.
American businesses are making inroads into some parts of the supply chain.
USA Rare Earth is currently building a magnet factory in Texas. The company intends to produce 5,000 tons of rare earth magnets per year here. According to Joshua Ballard, the firm owns a deposit rich in heavy rare earths in West Texas, including all the minerals on China’s latest export control list. The mentioned deposit is also rich in gallium, the export of which from the Asian country to the United States was banned by Beijing in December.
Joshua Ballard stated that the company is still working on the processing technology to extract minerals from the rocks.
The media notes that for many years, American companies have been immersed in rhetoric in a certain sense, and their progress has been more in the plane of statements than actions, which, however, does not negate the fact that some results have been achieved. Perhaps the current configuration of the geopolitical reality, almost the main component of which is the confrontation between Beijing and Washington, will push the mentioned firms to the hard work of re-establishing the US industry for extracting and processing raw materials. The media separately point out that this hard work is critically necessary from the perspective of the United States in the context of the technological race with China.
The Center for Strategic and International Studies (CSIS), based in Washington, DC, said that export restrictions on rare earth elements from an Asian country could threaten US military capabilities. This view is based on the belief that the United States will not be able to fill a shortfall. CSIS published a corresponding report last Monday, April 14th.
At the same time, the media notes that there is still no definitive understanding of how China will implement export restrictions on the practical plane. CSIS warns of a pause in shipments while the Asian country establishes a licensing system. The media this week published information that the export of rare earths from China is already on pause.
It is also worth noting separately that in addition to tightening the rules for external shipments, the Asian country had placed 16 United States entities on its export control list. Placement on this list prevents companies from receiving dual-use goods, including rare earth elements.
CSIS also noted that the development of mining and processing capabilities requires long-term efforts, which means that in the foreseeable future, the United States will be on the back foot. Moreover, it was underlined that even before the latest restrictions from China came into force, the US defense industrial base struggled with limited capacity and faced a lack of opportunities to scale up production to meet the demand for defense technologies. CSIS also noted that the Asian country is acquiring advanced weapons systems and equipment five to six times faster than the United States.
The reality contains all possible arguments in favor of the US starting the intensive development of the domestic rare earth industry. The corresponding necessity is, to a certain extent, something like an existential challenge in many dimensions. How Washington will deal with these circumstances of the current historical moment will become known over time.
As we have reported earlier, China Demonstrates Readiness for Trade War.
