Economy

Can China’s Rare Earth Controls Derail US AI and Defense? Beijing’s Strategic Play Ahead of Trump-Xi Summit

China to keep rare earth export controls, using them for leverage in US economic competition.

byAndres Castro

October 26, 2025, 8:31 PM

A large, yellow haul truck drives on a dirt road in a rocky open-pit mine, with piles of ore.

A mining haul truck carries rare earth minerals at an Australian outback mine. By BJP7images / Shutterstock.com.

Executive Summary

China is poised to maintain its rare earth export controls, utilizing its critical role in the global supply chain to exert leverage, especially concerning the United States’ artificial intelligence and defense industries, even with an anticipated meeting between President Xi Jinping and Donald Trump.

The implementation of rare earth export controls marks a significant shift in China’s economic strategy, moving from a defensive posture of mitigating vulnerabilities to an offensive stance in the trade dispute with the United States.

The United States’ heavy reliance on rare earths for advanced technology and military applications places it in a precarious position, with expectations for China to roll back controls remaining low without significant reciprocal policy adjustments from the US.

The Story So Far

China has strategically shifted its economic posture from defensive to offensive in its trade dispute with the United States, utilizing its dominant position in the global rare earth supply chain to exert leverage. These export controls represent Beijing’s “first major counter-attack” and come as the U.S. remains highly dependent on these materials for its critical artificial intelligence and defense industries. This move aims to pressure the U.S. amid strained global supply chains, even as President Trump is expected to meet with President Xi Jinping.

Why This Matters

China’s sustained rare earth export controls mark a strategic escalation in its economic competition, granting Beijing significant leverage over critical U.S. artificial intelligence and defense industries due to America’s high reliance on these materials. This places the U.S. in a vulnerable position, potentially forcing compromises to maintain its tech sector while simultaneously ensuring that underlying tensions could reignite as long as demand for defense materials persists, signaling a prolonged period of economic friction rather than de-escalation.

Who Thinks What?

China is poised to maintain its rare earth export controls as a strategic offensive to leverage its critical role in the global supply chain, aiming to exert influence over the United States, especially concerning its AI and defense industries.

The United States is highly reliant on rare earths for its advanced technology and military applications, placing it in a precarious position where it may make compromises for its AI sector but could reignite tensions over defense industry demands.

Analyst Andy Xie believes China’s rare earth controls represent its first major counter-attack in the trade war, suggesting that the US economic strategy, characterized by “bubbles and weapons,” faces inherent limitations and a diminishing shelf life.

China is poised to maintain its recently implemented export controls on rare earths, even as President Xi Jinping is anticipated to meet with Donald Trump on the sidelines of the Asia-Pacific Economic Cooperation (Apec) summit later this month. This stance reflects Beijing’s strategic pivot in economic competition, utilizing its critical role in the global supply chain of these materials to exert leverage, especially concerning their importance to the United States’ artificial intelligence and defense industries.

China’s Strategic Offensive

The rare earth export controls mark a significant escalation in China’s economic strategy against the United States. Initially, Beijing focused on mitigating its own vulnerabilities by reducing reliance on exports to the American market. However, these new controls signal a shift towards an offensive posture in the trade dispute.

According to analyst Andy Xie, these controls represent China’s first major counter-attack in the trade war, moving beyond retaliatory tariffs. This move comes amid a strained global weapons supply chain and a burgeoning artificial intelligence sector, highlighting the substantial leverage China possesses over key aspects of the US economy.

US Economic Vulnerabilities

The United States’ reliance on rare earths is particularly acute for its advanced technology and military applications. The ongoing expansion of artificial intelligence and the sustained demand for defense materials underscore the critical nature of these resources for Washington.

Xie suggests that while the US may make compromises to prevent a collapse of its AI sector, it is likely to reignite economic tensions with China once its demand for rare earths for the weapons industry becomes pressing. This dynamic places the US in a precarious position, balancing immediate economic stability with long-term strategic goals.

Outlook for US-China Relations

Despite the upcoming Apec summit, expectations for China to roll back its rare earth controls are low. Beijing might consider increasing supplies for civilian industries, but only if the US reciprocates by de-escalating its own policies, following a trade truce brokered in Geneva earlier this year.

The analyst further contends that the US economic strategy, characterized by cycles of “bubbles and weapons” and propped up by the dollar’s reserve currency status, faces inherent limitations. This approach, aimed at weakening competitors while minimizing self-damage, is seen as having a diminishing shelf life, particularly as China asserts its economic influence.

Ultimately, China’s firm stance on rare earth export controls underscores a calculated strategy to utilize its economic strengths in a broader geopolitical context. The upcoming Apec summit will likely offer a platform for dialogue, but fundamental shifts in this critical trade area appear unlikely without significant policy adjustments from the United States.