In 2019, during Donald Trump’s first trade war with China, President Xi Jinping highlighted rare earth minerals during a visit to a factory in Ganzhou. Nearly six years later, China’s dominance of these vital resources, essential for advanced technologies like electric vehicles and smartphones, has become a critical weapon in ongoing trade tensions. Rare earths, though not particularly rare, are challenging and costly to extract, and China controls a staggering 92% of their processing.
In early April 2023, China imposed export restrictions on seven rare earth elements, retaliating against Trump’s tariffs on Chinese goods. This action requires all companies to secure government permission to export not just the minerals but also associated products, significantly impacting American industries reliant on rare earth supplies. These minerals are crucial for high-tech applications, including in defence technology like the F-35 fighter jet.
China’s control in this field has been reinforced since it began extracting rare earths in the 1950s, but it gained a competitive edge in the late 1970s by combining low labour costs with foreign technology. Presently, the US relies heavily on Chinese imports; from 2020 to 2023, it sourced about 70% of its rare earth requirements from China.
The recent export controls have resulted in immediate disruptions, halting shipments for several American and European firms. Industry experts note that companies are struggling with the new licensing system, which complicates exports even for small shipments containing rare earth elements.
While China has used its resource dominance as leverage before—such as in a 2010 dispute with Japan—the current situation presents a complex challenge for the US. The Pentagon has been investing heavily in creating domestic supply chains to reduce reliance on China, with over $439 million spent since 2020. American companies are also ramping up production capabilities, aiming to create a robust supply chain that can compete with China’s different scales and government support.
Emerging players in the US are optimistic; for instance, a Massachusetts start-up is developing sustainable methods to refine rare earths without environmental waste. Meanwhile, USA Rare Earth is establishing a magnet production facility in Texas and has access to rich deposits of rare earths.
Overall, while the export restrictions from China pose significant challenges, they also provide an impetus for American companies to accelerate efforts in re-establishing a competitive rare earths industry. The aim is to ensure independent and sustainable supply chains, crucial for future technological advancements and national security.