[Salon] China Is Counting On Its Rare Earths Dominance to Make Trump Blink - Guest Post

[Salon] China Is Counting On Its Rare Earths Dominance to Make Trump Blink - micheletkearney@gmail.com - Gmail China Is Counting On Its Rare Earths Dominance to Make Trump Blink Mary Gallagher Jun 10, 2025 https://www-worldpoliticsreview-com.proxy.library.nd.edu/china-us-trump-rare-earths/ 1/6 The U.S.-China trade dispute has continued to deepen, demonstrating the dramatic dif culty of any decoupling of the two countries’ economies, as well as the limited leverage that U.S. President Donald Trump has over Beijing if he wants to avoid huge economic shocks at home. In the first cycle of the dispute, which began with Trump’s imposition of punishing tariffs in April and culminated last week with a phone call between Trump and Chinese President Xi Jinping, China emerged as having the stronger hand and the ability to wait the U.S. out, even as its own economy languishes. Key to China’s comfortable position is its control of rare earth metals, which are central components to a range of high-tech products. China’s dominance in the sector is nearly absolute, from mining and processing them to manufacturing intermediate inputs from them, especially magnets. It exercises a similar hold over the supply chains that use these inputs, including electric vehicle—or EV— batteries, wind turbines and other products critical to the clean energy sector. Beyond clean energy, these critical minerals are necessary for key weapons platforms of the U.S. military and many everyday consumer products, from cell phones to rechargeable batteries. After their first round of trade talks in Geneva in May, the two sides agreed to a 90-day truce on their most draconian tariffs and counter-tariffs. But China’s decision following those talks to slow-roll any relaxation of its export bans on a range of rare earths, several of which it imposed after Trump’s tariff announcement in April, sent industries and governments into a frenzy of concern. There were reports of production pauses in the automotive industry and fears that U.S. military readiness would be at risk. Reporting from the latest round of talks in London, which began yesterday and will continue today, suggests that the U.S. is considering relaxing its own export controls to China of advanced semiconductors. If so, it demonstrates that the Trump administration wildly overestimated its bargaining position vis-a-vis Beijing when it launched its trade war in April. The way the conflict is unfolding raises two questions. Why did China use its most lethal bargaining chip now? And what does this latest round of supply chain weaponization indicate for the future of U.S. self-sufficiency and derisking with regard to its rare earths dependencies on China? There is plenty of precedent for China’s weaponization of supply chains, including for rare earths, so there should be little surprise that Beijing has wielded them as a bargaining chip today. China’s leaders first recognized the significance of the country’s dominant position with regard to rare earths in 1992, when Deng Xiaoping remarked that rare earths are to China what oil is to the Middle East. Moreover, China has already weaponized rare earths for political leverage: against Japan in 2010, when the Japanese coast guard arrested the captain of a Chinese trawler that had rammed a coast guard vessel intercepting it for fishing in waters off the Japanese-controlled Senkaku Islands, which China claims as the Diaoyu. While Tokyo quickly released the captain, the pause in exports of rare earths to Japan, which was almost totally dependent on China for them at the time, threatened the supply chains of its then-dominant automotive sector. China wielded the rare earths “weapon” now because the U.S. has moved too slowly thus far. And given the time needed to open new mines and processing plants, China still has several years of advantage. But if the 2010 incident revealed China’s ability to leverage its dominance over the sector for political purposes, why has so little changed when it comes to that dominance between 2010 and 2025? The 2010 shock did lead Japan to reduce its dependence on China for rare earth minerals. But it continues to source about 60 percent of its rare earths, both raw and processed, from China. The U.S. similarly tried to reduce its rare earths dependence on China after 2010, but mostly through market mechanisms that either failed completely or moved too slowly. From Deng’s remark in 1992 to the dispute playing out today, China’s critical minerals strategy is a textbook study in its ability to wield party-state control over the economy, ultimately implementing industrial policies that heightened Beijing’s leverage over other global actors, ranging from nation-states to large multinational corporations. China achieved this dominance through a step-by- step strategy across the supply chain—from mining and processing, to manufacturing of inputs and end products. First, Beijing expanded domestic mining and processing of rare earths, taking advantage of other countries’ concerns about the severe environmental degradation caused by both activities to dominate global supplies. In doing so, China encouraged intense domestic competition in the sector, including the role of private firms that were often less regulated than state-owned enterprises. This intense competition allowed China to bring production costs down, even at the expense of the environment, which was not an overarching concern in the early reform period under Deng. Second, as China’s dominance increased, the state moved to enact industrial policies that encouraged domestic manufacturing of products using rare earths to the detriment of producers elsewhere. This allowed China to dominate in the next and more advanced stage of the supply chain: manufacturing inputs. As an example, China now produces over 90 percent of rare earth magnets needed for global supply chains. Third, after the first round of weaponization against Japan in 2010, as other countries began to expand their own domestic capacity in mining, processing and manufacturing, China then moved to rapidly increase its exports of these goods, driving down global prices and making self-sufficiency efforts elsewhere economically unfeasible. This torpedoed attempts in the U.S. and elsewhere to open new mining and processing facilities. Finally, China has encouraged domestic consolidation of rare-earths processing with large state-owned enterprises that are more able to respond to government directives quickly. Internationally, this consolidation has allowed China to continue to dominate the processing of rare earth minerals, including even those mined in the U.S. and Australia, further complicating the efforts of other countries to achieve self-sufficiency. As a result of this multistage effort, China is now dominant not just at home, but also globally. The thorough weaponization of economic interdependence is not new. It has been on display in Russia’s dominance of Europe’s energy supplies prior to the war in Ukraine, the United States’ wielding of financial sanctions and China’s power over critical minerals. But each incident of weaponization tends to weaken leverage, as countries seek new ways to reduce dependence. Russia’s invasion of Ukraine led Europe to end new energy supplies, for instance, and U.S. sanctions on Russia have led China to seek financial options outside the U.S.-dominated SWIFT network for international settlements, as well as to increase yuan-denominated bilateral trade. China wielded the rare earths “weapon” now because the U.S. has moved too slowly thus far. And given the time needed to open new mines and processing plants, China still has several years of advantage. If this now leads to a U.S. retreat on semiconductor controls, thereby dismantling restrictions on Beijing’s AI ambitions, then China will also bene t in the future in other critical sectors. The use of rare earths in the current trade war will further impel the U.S. to expand domestic mining and processing. But any new approach to reducing China’s dominance in this sector will require borrowing from Beijing’s playbook. Industrial policy, state support and subsidies will be needed. But the Trump administration is going in the opposite direction, with a broad reversal of policies instituted by former President Joe Biden that sought to supercharge investments into clean energy technology and products made in the United States. The current budget reconciliation bill under consideration slashes these policies, while preserving the stockpiling of critical minerals. Given the importance of renewable energy to many other critical sectors, including AI, the U.S. needs to create domestic capacity for rare earth inputs, not just stockpiles. In the meantime, China can claim a twofold victory in this round of Trump’s trade war: economically, as it shows its leverage in this critical sector, but also politically, as its state-led policies have paid off handsomely. Now the question is whether the U.S. will learn the right lessons from China’s success. Mary Gallagher is the Marilyn Keough Dean of the Keough School of Global Affairs at the University of Notre Dame.