Less than a year into Donald Trump’s first trade war with China, Chinese leader Xi Jinping made a high-profile visit to an unassuming factory in Ganzhou, an industrial city nestled among rolling hills in the country’s southeast. Touring its exhibition hall in 2019, Xi examined row upon row of unremarkable gray metal blocks and declared to his entourage of Communist Party officials: “Rare earths are a vital strategic resource.”
Nearly six years on, China’s dominance of the rare earths supply chain has emerged as among its most potent tools in a renewed trade war with the United States president. The minerals – used to power everything from iPhones to electric vehicles – are vital components for the kinds of advanced technology that will define the future. And unlike tariffs, it’s a front where Trump has little room to retaliate in kind.
Rare earths are a group of 17 elements that are more abundant than gold and can be found in many countries, including the United States. But they’re difficult, costly and environmentally polluting to extract and process. For decades, the US and other countries have been dependent on Beijing’s supply of these processed metals. China accounts for 61% of global mined rare earth production, but its control over the processing stage is 92% of the global output, according to the International Energy Agency. On April 4, after years of veiled warnings, the Chinese government placed export restrictions on seven types of rare earth minerals, as part of its retaliation against Trump’s initial 34% “reciprocal” tariffs on Chinese goods. The new rules require all companies to secure government permission to export the seven minerals as well as associated products, such as magnets.
Magnets made of rare earths enable smaller, more efficient motors and generators used in smartphones, car and jet engines, and MRI machines. They are also essential components in a range of big-ticket weapons, from F-35 stealth fighter jets to nuclear-powered attack submarines. “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 and public policy at the University of Michigan.
On Tuesday, Trump ordered a probe into potential tariffs on critical minerals, a broader category of resources that include rare earth elements, to evaluate the impact of these imports on America’s security and resilience. “The dependence of the United States on imports and the vulnerability of our supply chains raises the potential for risks to national security, defense readiness, price stability, and economic prosperity and resilience,” Trump said in an executive order.
Since the first Trump administration, the US has been trying to play catch-up and build up its own domestic rare earths supply chain. Three American rare earth industry companies told CNN that they are in the process of expanding production capacities and sourcing materials from US allies and partners. But those efforts will take years to meet the enormous demand from key US industries.
Suspended orders
For now, the impact of Beijing’s export controls is being swiftly felt on the ground. John Ormerod, founder of rare earth magnet consultancy JOC, told CNN 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 order. “They were taken by surprise so there’s a lot of confusion on their side and they needed clarification from the authorities of what’s required (to obtain the required export licenses),” he said. Joshua Ballard, CEO of USA Rare Earth, said the export controls focus on “heavy” rare earths, which are 98% controlled by China. (Heavy rare earths are less common, harder to process and more valuable.) This means that companies must now seek Beijing’s approval to deliver these critical materials to key American industries, he added.
“Right now, literally these exports are being suspended,” Ballard said. “We don’t hold a lot of back stock of this in inventory here in the US … This is China’s best play. They don’t have much leverage when it comes to tariffs on us, but they sure do have leverage here.” The export controls not only target single materials but also alloys and products where the elements are contained even in minimal quantities, said Thomas Kruemmer, director of the Singapore-based mineral and metal supply chain firm Ginger International Trade and Investment. “A lot of exports now fall under this licensing system,” he added, noting that some delays are expected as exporters navigate the new system.
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