In the escalating trade war between the U.S. and China, Beijing holds a hidden advantage: its dominance over the global supply chain of rare earth minerals. These vital components, used in everything from iPhones to electric vehicles, are increasingly becoming a strategic weapon in this economic tussle.
Despite efforts to establish a domestic supply chain, the U.S. remains largely dependent on China, which controls 61% of the global mined rare earth production and 92% of its processing.
China’s supremacy in the rare earths supply chain is not a sudden phenomenon; it’s been decades in the making. The country began its journey in rare earth extraction in the 1950s, and by the late 1970s, the industry started to bloom.
Using low labor costs, relatively lax environmental standards, and foreign technologies, China rapidly developed its rare earth production capabilities.
“It’s China showing that it can exert incredible economic might by being strategic … and surgical and really hitting American industry right where it hurts,” said Justin Wolfers, a professor of economics at the University of Michigan.
The recent move by the Chinese government to place export restrictions on seven types of rare earth minerals is seen as part of its retaliation against President Trump’s initial 34% “reciprocal” tariffs on Chinese goods.
These restrictions require companies to secure government permission to export these minerals and related products such as magnets – vital components used in smartphones, car engines, jet engines, MRI machines, and big-ticket weapons.
American industries are already feeling the impact of these export controls. Shipments of rare earth magnets belonging to at least five American and European companies have been halted in China since the order’s implementation.
Since Trump’s first administration, efforts have been underway to build up a domestic rare earths supply chain. However, these efforts will take years to meet the enormous demand from key US industries.
China’s export controls not only target single materials but also alloys and products where the elements are contained even in minimal quantities. This results in a lot of exports now falling under this licensing system, creating delays as exporters navigate this new terrain.
“We’ve lost the know-how, we’ve lost the human resource capability and it’s a very capital-intensive operation,” said John Ormerod, founder of rare earth magnet consultancy JOC.
He added that competing with China’s price due to its greater economies of scale and government incentives has become increasingly difficult for American companies.
Despite these challenges, some American companies view China’s export controls as an opportunity to expedite domestic production and push for a stronger supply chain outside China. The US Department of Defense has awarded over $439 million to establish domestic rare earth element supply chains and aims to develop a sustainable, mine-to-magnet supply chain capable of supporting all US defense requirements by 2027.
China’s control of the rare earths supply chain is more than just an economic advantage—it’s a strategic asset. This dominance allows China to wield considerable power in international trade disputes, as seen in its ongoing war with the United States.
The recent export restrictions on seven types of rare earth minerals are a clear illustration of this power, as they have disrupted industries and forced companies to navigate a new licensing system.
This situation underscores the strategic importance of these minerals, which are key components in a wide range of products—from everyday devices like smartphones to advanced military equipment. As such, any disruption to their supply can have significant ripple effects across multiple sectors and economies.
The US has been playing catch-up, trying to establish a domestic rare earths supply chain since the first Trump administration. However, building such a supply chain is a long-term endeavor that requires substantial investments in technology, human resources, and capital—resources that have been dwindling in the US.
The fact that China controls 92% of the global output at the processing stage speaks volumes about its dominance in this industry. This control empowers China to set terms and dictate prices on the global stage, thereby exerting tremendous influence over other countries that depend on these minerals for their industries.
The ongoing trade war is also a wake-up call for other countries about the risks of over-reliance on a single source for vital resources. As we move further into this technology-dominated era, control over such resources could indeed become the deciding factor in global power dynamics.
