Executive Summary
The Story So Far
Why This Matters
Who Thinks What?
China has recently escalated trade tensions with the United States by implementing sweeping new curbs on its rare earth exports. The regulations, outlined in “announcement No. 62 of 2025” from China’s Ministry of Commerce, require foreign companies to secure government approval and declare the intended use for products containing even minimal amounts of these critical minerals. This move tightens Beijing’s near-monopoly on the global supply of rare earths, crucial for various advanced technologies, and comes ahead of an anticipated meeting between President Donald Trump and China’s President Xi Jinping later this month.
Mounting Trade Tensions
In response to China’s announcement, President Trump threatened to impose an additional 100% tariff on Chinese goods and implement export controls on key software. US Treasury Secretary Scott Bessent characterized the situation starkly, stating, “This is China versus the world. They have pointed a bazooka at the supply chains and the industrial base of the entire free world, and we’re not going to have it.”
A Chinese Commerce Ministry spokesperson countered by noting that the US had introduced 20 measures to suppress China within a short period following economic and trade talks in Madrid in September. This flare-up follows months of relative calm after top US and Chinese officials brokered a truce in May.
Strategic Importance of Rare Earths
Rare earth minerals are indispensable for manufacturing a wide array of high-tech products, ranging from smartphones and solar panels to electric vehicles and advanced military equipment. For instance, a single F-35 fighter jet is estimated to require over 400kg of rare earths for its stealth coatings, motors, and radar systems.
China holds a dominant position in the processing of these minerals, accounting for approximately 70% of the world’s supply of metals used in electric vehicle motor magnets. Experts indicate that Beijing has cultivated a vast talent pool and an advanced research and development network, placing it years ahead of competitors in this sector.
Global Supply Chain Vulnerability
While the United States and its allies are investing heavily to develop alternative sources for rare earths, experts suggest it will take at least five years to match China’s processing capabilities. Australia, with its own significant deposits, is considered a potential challenger, but its production infrastructure remains underdeveloped, leading to higher processing costs.
The latest restrictions expand upon measures Beijing announced in April that initially caused a global supply crunch before a series of deals with Europe and the US eased shortages. Official figures indicate a more than 30% year-on-year drop in China’s rare earth exports in September.
Economic Leverage and De-escalation
Despite the reduction in exports, analysts do not expect a significant economic impact on China, as rare earths constitute less than 0.1% of its annual gross domestic product. However, Professor Sophia Kalantzakos of New York University noted that their strategic value “is huge,” providing Beijing with considerable leverage in negotiations with the US.
Despite his strong criticism, Treasury Secretary Bessent expressed optimism for de-escalation, suggesting that China is open to discussion. Analysts view China’s recent actions as a strategic maneuver to strengthen its negotiating position ahead of upcoming trade talks with the US, utilizing rare earth controls as its “best immediate lever” to pressure Washington.
US Strategic Options
While Beijing appears to hold the upper hand in the short term, Washington possesses several strategic options. The US could offer to lower tariffs, which would likely be attractive to China, given that the trade war has significantly impacted its manufacturers and led to a 27% decline in exports to the US year-on-year.
Alternatively, the US could threaten further trade restrictions on China’s technology sector, such as expanding existing blocks on high-end semiconductor purchases. However, experts caution that such measures may only slow, rather than halt, China’s long-term technological development, as the country has demonstrated a willingness to absorb economic pain to achieve its strategic objectives. According to international business lecturer Naoise McDonagh, “if China cuts off these rare earth supplies, that can actually stop everyone’s industry. That’s the big difference.”
