China's Mineral Dominance: Beijing's Winning Card in the Trade Battle with the U.S.?

Their names are difficult to pronounce, they play a vital role in modern industrial production, and they are now at the center of the escalating trade war between the United States and China. The global supply of these rare earth elements, a group of 17 elements used in everything from electric vehicle batteries to sensitive defense technologies, is largely controlled by China. Beijing is now seeking to leverage this strategic tool as tensions with Washington rise. In response to recently imposed tariffs by the U.S., China has limited the sale of seven rare earth elements to the United States. Although this action does not constitute a complete ban, it requires producers to obtain government permits for exporting these elements; a situation that experts say could lead to price increases and supply chain shocks, especially in U.S. defense industries. Sean McFate, a professor at Syracuse University in New York, states, "Just as oil was vital for the 20th century, rare earth elements are critical for the 21st century. Chips, green technologies, and quantum computing all depend on these elements, and China holds the largest reserves of them. This is a security necessity that goes beyond the stock market." China controls over two-thirds of global rare earth element production and more than 90% of its processing capacity. It also nearly completely dominates the processing of heavy rare minerals; elements that are used to create powerful magnets in fighter jets, warships, missiles, tanks, and lasers in the U.S. defense sector. It is still unclear how exactly China will implement these new restrictions, but a report from the American think tank, the Center for Strategic and International Studies (CSIS), warns that the enforcement of these policies may involve a temporary halt in exports and could disrupt supply for some American companies, particularly in the national security sector. The report states on April 14: "The supply chain for these elements in the United States is vulnerable. Currently, no heavy rare earth element separation processes are being conducted in the U.S." The new export restrictions include seven medium and heavy rare mineral elements: samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium, all of which play key roles in the defense sector. For instance, yttrium is used in high-temperature resistant coatings in jet engines to prevent them from melting mid-flight. Analysts believe Beijing is looking to exploit this U.S. dependency. "Significant progress" in the rare mineral resource agreement between the U.S. and Ukraine. Although the Pentagon and some American companies have reserves, these reserves are not sufficient to withstand a long-term disruption in the supply chain. In addition to the export restrictions on these elements, China has also placed 16 American companies (almost all active in the defense and aerospace sectors) on its export control list, limiting their access to dual-use goods, including rare earth elements. Dimitar Georgiev, a professor at Syracuse University, states that this action by China is more of a message than a real sanction, demonstrating "China's ability to control the flow of exports in the event of heightened tensions." He added, "Most importers have long been concerned about such a possibility and are likely stockpiling for the next few months." However, China's capacity to escalate restrictions is a powerful tool in itself. In addition to reducing supply, China's dominance in the market allows it to control prices; meaning it can both raise costs for some customers and weaken uncontrollable markets by keeping prices low. This approach has been previously employed by China. In 2023, Beijing restricted the export of gallium and germanium (which are used in chip manufacturing, radars, and satellites) and in December 2024, completely banned their exports to the United States. Since then, prices have rapidly increased and the global market has faced issues. According to a report by Project Blue, the price of gallium purchased from Western countries is two to three times more expensive than its Chinese counterpart. The CSIS report also warns that China's export control poses a direct threat to U.S. military readiness and raises concerns about America's lag in defense production. The report states, "Even before the recent restrictions were imposed, the U.S. defense industrial infrastructure faced limited capacity and was unable to ramp up production to meet defense technology needs." The authors of the report reference an estimate from a U.S. Air Force official in 2022, which indicated that China is achieving advanced military systems and equipment five to six times faster than the United States. The report concludes: "Further bans on critical minerals will exacerbate the existing gap and allow China to strengthen its military capabilities faster than the United States." How can the United States respond? Experts say that to counter China's pressure, the U.S. must adopt policies to strengthen domestic production while also seeking new foreign sources. Until the 1980s, the U.S. was a leader in the production of rare earth elements, but rising costs led to the closure of the important Mountain Pass mine in California in the early 2000s. This mine has since been reopened, and various U.S. administrations, including that of Donald Trump, have made investments to extract and process rare earth elements. However, reaching China's level in these elements and other strategic minerals is a time-consuming and costly process. Industry activists have also warned that other tariffs imposed by Trump could have side effects and make rapid development of rare mineral production more difficult. Daniel O'Connor, an entrepreneur in this field, stated regarding these rare materials: "Materials like steel and aluminum, which are subject to tariffs, are essential for extraction and processing. We should not impose tariffs on things we need to build our infrastructure." Meanwhile, the United States is also trying to secure foreign resources. The Trump administration was negotiating with Greenland and Ukraine for greater access to rare earth elements and other critical minerals, and it is reported that Washington and Kyiv are close to an agreement. Washington has also supported the establishment of new mines in Brazil and South Africa and is financing the first large-scale processing facility for heavy rare earth elements outside of China in Texas; although full operation will take years. In the meantime, China is expected to continue using the leverage of rare earth elements to pressure Washington. Neil Shearing, chief economist at Capital Economics, wrote on April 14: "This tactic has become part of Beijing's behavioral pattern in the face of Washington's pressures." He added, "Using control over critical minerals as a weapon, and the competition among countries to find alternative resources, will become one of the main features of the fragmented global economy."