A new front has emerged in the US-China trade war, and it brings troubling news for nations that engage in commerce with both.China has reportedly instructed South Korean firms to cease exporting defense-related products to the United States if those products contain rare earth elements sourced from China.
These natural metals—17 elements on the periodic table—are essential for a range of products, from smartphones to satellites, and are critical for renewable energy technologies such as solar panels and wind turbines, along with advanced weaponry, robotics, and rockets.
Moreover, China accounts for the majority of the global supply of these materials.
“It’s shocking,” stated Julie Michelle Klinger, a geography professor at the University of Delaware and author of *Rare Earth Frontiers*.
“Under a liberal free trade system, what right does one nation have to dictate the business and trade choices of another?” she added, asserting, “It’s evident that this is no longer the world we inhabit.”
In fact, in retaliation for US President Donald Trump’s imposition of 145% tariffs on Chinese goods, China swiftly played its trump card: enforcing a licensing regimen to restrict the export of seven heavy rare earth elements and the high-performance magnets that utilize them.
Observers noted that this was a clear indication of Beijing’s readiness to weaponize its supremacy in the sector.
“China compiled that list with intention,” remarked Mel Sanderson, director of American Rare Earths, in a statement to Reuters. “They targeted items that are vital for the US economy.”
This week, Tesla’s CEO and close presidential advisor, Elon Musk, who has significant business ties in China, recognized that the situation is causing complications.
During a call with Tesla investors on Tuesday, he indicated that a shortage of magnets could impede the production of AI-driven humanoid robots meant to perform mundane tasks such as cleaning, serving drinks, and working on assembly lines.
And Musk isn’t the only one expressing concern. While these magnets are crucial for operating a tea-serving robot, they are equally essential in the engines of fighter jets.
Concerns regarding global reliance on China for critical minerals have been prominent in Washington—and indeed in Brussels—for years.
Shortly after Russia launched a full-scale invasion of Ukraine, Sweden’s deputy prime minister, Ebba Bush, noted that Europe’s dependency on Russian gas would “seem like a pleasant summer breeze” in comparison to its reliance on China for the transition to green energy.
The dependency on critical minerals quickly became a top priority for the Trump administration, with the White House initiating discussions for preferential access to Ukrainian resources and even contemplating annexation of resource-rich Greenland for similar reasons.
However, one crucial element often omitted is China’s near-total monopoly on processing these minerals.
In essence, nations can extract these resources from their own territories—like in Ukraine or Greenland—but they still have to send them to China for processing and refinement.
Developing domestic mining and processing capabilities requires “a long-term effort,” suggesting that the United States will “be on the back foot for the foreseeable future,” as per a recent report from the Centre for Strategic and International Studies in Washington, DC.
Analysts contend that policymakers should have anticipated this.
“I hate to be the bearer of this news,” Ms. Klinger quipped, “but I remember mentioning over a decade ago that if we were to face a rare supply chain crisis, it would be entirely preventable.”
So how did the world arrive at this juncture?
What led the US, once the powerhouse of mining and refining, to relinquish its industry?
The explanation is straightforward, according to Ian Lange, an associate professor of mineral economics at the Colorado School of Mines: it wasn’t very profitable.
“I believe it was a conscious choice to abolish a low-value industry,” he stated in an interview with RTÉ News.
Additionally, the industry is heavily polluting.
A study published by the Harvard International Review in 2021 found that for every ton of rare earth produced, the mining process generates “13 kg of dust, 9,600-12,000 cubic meters of waste gas, 75 cubic meters of wastewater, and one ton of radioactive residue.”
For years, it was logical for the US, Europe, and others to offshore these activities to China, as, through state subsidies, lenient labor and environmental regulations, R&D investment, and sheer industrial scale, it could—similar to other manufacturing sectors—produce everything at a lower cost.
The strategic vulnerability of this setup was first highlighted in 2010 when China imposed export restrictions on Japan due to a territorial dispute involving a fishing trawler.
China reversed the ban only after the World Trade Organization ruled against it.
However, the shockwaves were felt globally.
This event drew parallels to the 1973 energy crisis when Middle Eastern oil-producing nations halted exports to the US and other countries in reaction to their support for Israel during the Yom Kippur War.
By the time the embargo was lifted, global oil prices had surged over 300%.
The power of resource-rich nations to exert influence over resource-dependent ones was not lost on former Chinese leader Deng Xiaoping.
“While the Middle East has oil,” he famously asserted during a visit to one of China’s largest mineral mines, “China has rare earths.”
However, there’s a key distinction, according to Ian Lange.
Oil deposits are concentrated in a limited number of regions, but “rare earths” is a misnomer, as they are not actually that rare at all.
“Every country has decent soil,” he said.
The real question is whether nations like the United States are committed to developing their domestic industries—along with the associated environmental impacts—and critically, if they can remain viable in a market dominated by cheaper alternatives from China.
In the 15 years since rare earths gained attention during the Japan crisis, the industry hasn’t advanced significantly, according to Lange.
“It’s an economic challenge,” he said, “as you are competing against a subsidized monopolist that prioritizes growth over profits.”
This is why China’s export limitations on rare earths in retaliation for Trump’s tariffs are seen as “a gift to Western industry,” Ms. Klinger commented.
Entities outside of China have been striving to establish their rare earth supply chains for years, she noted.
“They just haven’t been able to compete with China.”
Nonetheless, some diversification has taken place.
Last year, the Australian mining firm Lynas opened its inaugural rare earth processing plant in Western Australia.
Meanwhile, California’s Mountain Pass mine, which was closed in the 1990s due to toxic waste issues, reopened in 2018. The mine is currently operated by MP Materials, which is also constructing a magnet-making facility in Fort Worth, Texas.
In Europe, there are processing facilities in Estonia and Sweden, and the Belgian chemical company Solvay recently launched a rare earth magnet production line at its site near La Rochelle, France.
By 2030, it is projected to meet 30% of Europe’s demand for high-performance magnets.
However, in the 40 years since the rare earth industry began relocating to China, the nation has acquired the technological expertise that others simply lack and will face challenges in developing suddenly.
In 2023, Beijing declared restrictions on foreign access to that technology, seen as partially retaliatory against a Biden-era ban on the sale of advanced US computer chips to China.
Nonetheless, while China is willing to utilize rare earths as part of its trade war arsenal, it is also cautious of overreaching.
Threatening to hold the world hostage could undermine its dominance in the industry by fostering alternative sources and harming its reputation as a reliable trading partner, analysts warned.
“Taking dramatic action like halting exports or anything that disrupts the flow of materials out of China would have repercussions for businesses invested in China,” Ms. Klinger stated.
“What happens if those companies pull out?”
China is wary of encountering labor unrest as a result, she added.
However, for companies—and indeed countries—doing business with both China and the US, Beijing’s recent warning to South Korea served as a reminder that they could find themselves caught in the crossfire of an escalating trade war.
Critical minerals are set to remain a pivotal battleground.
