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In response to the escalating trade war, China has imposed a major export restriction on rare earth minerals, a critical move impacting both global markets and US defense capabilities. This action follows the imposition of tariffs between the US and China and has sparked concerns regarding the future of supply chains and national security.

China’s Strategic Move in the Trade War

The trade dispute between the United States and China has entered a new phase. While both nations have been imposing tariffs on each other’s goods, Beijing has gone beyond tariffs by targeting rare earth elements, where it has a commanding global position. This move highlights China’s ability to strategically control a vital resource—rare earth minerals—that is essential to modern technology and defense systems.

This decision has highlighted America’s reliance on China for these critical materials. In response, President Donald Trump has directed the US Commerce Department to explore ways to boost domestic production of rare earth elements and reduce dependence on foreign sources. This includes increasing investment in mining and refining capacity to regain control over this strategic sector.

Understanding the Importance of Rare Earth Elements

Rare earth elements (REEs) are a collection of 17 metals that are chemically similar but essential to the operation of many high-tech devices. These elements are not rare in terms of their natural abundance, but they are difficult and environmentally costly to extract.

From smartphones to military technology, rare earth elements are used in an array of devices. Neodymium, for example, is crucial for the production of magnets used in electric motors, jet engines, and hard drives. Europium and Yttrium are essential in the production of colorful displays found in screens, such as those in televisions and computers.

“Almost every device with an on-off switch relies on rare earth elements,” said Thomas Kruemmer, Director at Ginger International Trade and Investment. The applications of these elements extend beyond consumer electronics and military hardware—they are also essential in the healthcare sector, powering MRI machines and laser surgery technologies.

China’s Dominance in the Rare Earth Market

China controls an overwhelming share of the rare earth market, producing approximately 61% of global rare earths and refining 92% of them. This level of control gives China the ability to dictate the global supply of these critical materials.

The country’s dominance is the result of decades of strategic investments and favorable government policies. Former Chinese leader Deng Xiaoping once stated, “The Middle East has oil; China has rare earths,” reflecting the country’s long-term focus on exploiting its rare earth resources. By keeping labor and environmental costs low, China was able to undercut competitors and control the entire value chain, from mining to final products like rare earth magnets.

New Export Controls and Their Impact on the US

In retaliation to US tariffs, China has implemented new export controls on seven rare earth minerals, many of which are essential to the defense sector. These minerals, particularly the heavier rare earths, are more difficult to process and hold greater strategic value.

Starting April 4, 2023, Chinese companies now need special licenses to export these minerals and magnets, leveraging the country’s rights under international treaties like the Non-Proliferation of Nuclear Weapons treaty. This regulation puts the US in a vulnerable position, as it has no domestic facilities capable of processing these heavy rare earths.

Implications for US National Security and Industry

China’s decision to restrict rare earth exports poses serious risks to the US economy, especially in sectors dependent on these materials. Between 2020 and 2023, the US imported 70% of its rare earth compounds from China. This dependence could leave the US vulnerable to supply disruptions, especially in critical sectors such as defense, where materials like rare earth magnets are used in advanced military equipment including fighter jets, missiles, and drones.

“The US defense sector is facing significant risks due to its reliance on China for these essential materials,” said Kruemmer. “Any disruption in supply could have immediate consequences for military readiness.”

In addition to defense, the broader manufacturing sector, including high-tech industries, could face delays and shortages, leading to higher production costs. Dr. Gavin Harper from the University of Birmingham warned that the disruption could also cause a surge in prices for rare earth materials, further escalating the cost of everything from smartphones to defense systems.

Efforts to Build Rare Earth Independence

To mitigate these risks, President Trump has initiated an investigation into the national security implications of the US’s dependence on foreign rare earths. The president emphasized the importance of reducing reliance on foreign suppliers, particularly China, to ensure the country’s technological and defense capabilities are not compromised.

Despite efforts to ramp up domestic production, the US still faces challenges. While there is one rare earth mine operating in the US, it lacks the ability to process the heavier elements. Instead, the country must ship its raw materials to China for processing. The US once led global production of rare earth elements but lost its competitive edge to China due to lower production costs.

The Path Forward for Rare Earth Independence

To regain control of the rare earth supply chain, the US would need to invest heavily in new technologies and infrastructure. Additionally, establishing partnerships with other countries with rare earth deposits, such as Ukraine and Greenland, could provide alternative sources. However, political tensions and military posturing may hinder such efforts, leaving the US to navigate a complex and uncertain geopolitical landscape.

“The US is caught between two challenges,” explained Dr. Harper. “It has lost China as a supplier but also alienated some of its potential allies. Whether these countries are willing to collaborate remains uncertain.”

As the US continues to address its rare earth dependency, the outcome will have significant implications not only for national security but for the future of global trade in high-tech materials.