China’s Rare Earths Ace: How Beijing Holds the Upper Hand in U.S. Trade Talks

Category: Tariffs & Trade | Boncopia.com

As trade talks between the United States and China heat up in 2025, Beijing is walking to the negotiating table with a confident stride. While both nations are eager to de-escalate a bruising trade war, China believes it holds a critical advantage: its dominance over rare earth minerals. These obscure elements, vital to everything from iPhones to fighter jets, have become Beijing’s trump card, giving it significant leverage over Washington. With a surprisingly resilient economy and a stranglehold on global rare earth supplies, China is playing a high-stakes game that could reshape the future of U.S.-China relations. Let’s dive into why rare earths are the ace up China’s sleeve and what this means for global trade.

The Rare Earths Power Play

Rare earth elements (REEs) aren’t as rare as their name suggests, but their extraction and processing are complex, costly, and environmentally taxing. China controls about 70% of global rare earth mining and over 90% of the processing, making it the linchpin of the supply chain for these critical materials. From samarium to dysprosium, these minerals are essential for manufacturing high-tech magnets used in electric vehicles, defense systems, smartphones, and medical equipment.

In April 2025, China flexed its muscle by imposing export restrictions on seven key rare earth metals—samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium—in response to U.S. tariffs that reached as high as 145%. These curbs, which require special export licenses, have disrupted supply chains worldwide, hitting U.S. industries particularly hard. Ford Motor Co., for example, was forced to shutter a Chicago factory producing Explorer SUVs due to a shortage of rare earth magnets.

China’s move wasn’t just a knee-jerk reaction. It was a calculated escalation in a trade war that’s been simmering since President Donald Trump’s “Liberation Day” tariffs on April 2, 2025. Beijing’s export controls are a reminder of its ability to choke off supplies critical to U.S. defense and manufacturing, giving it a potent bargaining chip in negotiations.

A Resilient Chinese Economy

China’s confidence isn’t just about rare earths. Despite U.S. tariffs, its economy has weathered the storm better than many predicted. While the U.S. economy shrank in early 2025, sparking market panic, China’s economic resilience has bolstered its negotiating stance. Analysts note that Beijing’s ability to absorb tariff-related pain, coupled with its strategic use of export controls, has shifted the balance of power.

“China’s not easy,” Trump admitted after the first day of talks in London on June 9, 2025, though he added, “I’m only getting good reports.” Yet, behind the optimistic rhetoric, U.S. officials are grappling with the reality that China’s economic fortitude and rare earth dominance give it a stronger hand than anticipated.

The Geneva Truce: A Fragile Peace

In May 2025, the U.S. and China struck a temporary truce in Geneva, agreeing to roll back astronomical tariffs and non-tariff barriers, including China’s rare earth export curbs, for a 90-day period. The deal was meant to restart the flow of critical minerals to U.S. manufacturers, but Beijing has been slow to comply. U.S. officials, including Treasury Secretary Scott Bessent, have accused China of “slow-walking” export license approvals, violating the spirit of the agreement.

China, however, insists it’s upholding its commitments. The Chinese Commerce Ministry recently approved some export licenses for suppliers to major U.S. automakers like Ford, General Motors, and Stellantis, signaling a willingness to ease tensions selectively. But Beijing has made it clear that its export controls, which apply globally and not just to the U.S., are tied to national security concerns, not just trade retaliation. This stance complicates negotiations, as China views rare earths as a strategic asset, not merely a trade lever.

Why Rare Earths Matter

To understand China’s leverage, consider the scope of rare earth applications. These 17 elements are critical for:

• Defense: Rare earths are used in F-35 fighter jets, Tomahawk missiles, drones, and radar systems. The U.S. Department of Defense has invested over $439 million since 2020 to build a domestic supply chain, but it’s still years away from self-sufficiency.

• Technology: Smartphones, laptops, and AI servers rely on rare earth magnets and capacitors. A single iPhone contains multiple rare earth elements.

• Green Energy: Electric vehicle motors and wind turbines depend on neodymium and dysprosium magnets, making rare earths central to the global energy transition.

China’s export restrictions have already caused ripple effects. Global automakers, including German and Indian manufacturers, have warned of production delays and outages. In the U.S., defense contractors are sounding alarms about supply chain vulnerabilities, with analysts warning that a prolonged cutoff could jeopardize military readiness.

The U.S. Response: Scrambling for Solutions

The U.S. is racing to reduce its dependence on Chinese rare earths, but the road is long. MP Materials, which operates the only active rare earth mine in the U.S. at Mountain Pass, California, has begun domestic refining and plans to produce magnets in Texas. However, it’s still a drop in the bucket—projected to produce just 1,000 tons of neodymium magnets by the end of 2025, compared to China’s 138,000 tons in 2018.

The Pentagon and other agencies are exploring partnerships with countries like Australia, where Lynas Rare Earths is a major player, and investing in alternative suppliers in Brazil, South Africa, and Vietnam. But these efforts are nascent, and experts estimate the U.S. is at least a decade away from rare earth independence.

President Trump has pushed for aggressive measures, including a proposed ban on Chinese students in the U.S. and export controls on chemicals, software, and nuclear components to China. These moves aim to pressure Beijing but risk escalating tensions further.

China’s Strategic Calculus

China’s rare earth strategy isn’t new—it’s a playbook refined over decades. In 2010, Beijing halted rare earth exports to Japan during a diplomatic spat, causing global prices to spike tenfold. Since 2023, it has incrementally tightened controls on strategic minerals like gallium, germanium, and now heavy rare earths, signaling a long-term shift toward weaponizing its supply chain dominance.

Beijing’s approach is twofold: maintain leverage in trade talks while protecting national security interests. By tying export controls to military applications and sanctions on U.S. defense contractors over arms sales to Taiwan, China justifies its restrictions as a matter of sovereignty. This makes it unlikely to fully lift controls, even as it selectively approves exports to favored partners.

Global Ripples and the Path Forward

The rare earth dispute isn’t just a U.S.-China issue—it’s a global one. Japan, South Korea, and European nations, reliant on Chinese supplies, are also feeling the pinch. Japan’s trade negotiator recently called rare earths “undoubtedly a critical theme for economic security,” while European automakers have sought emergency meetings with Beijing.

For now, both sides appear motivated to avoid a full-blown trade war. A phone call between Trump and Xi Jinping in early June 2025 paved the way for ongoing talks in London, with U.S. negotiators like Commerce Secretary Howard Lutnick and Chinese Vice Premier He Lifeng leading the charge. China’s state media has struck a conciliatory tone, emphasizing “mutual respect” and “win-win cooperation.”

Yet, the underlying tension remains. China’s rare earth grip gives it a structural advantage that the U.S. can’t quickly counter. As Liza Tobin of Garnaut Global put it, “Beijing squeezed harder, but Washington’s reaction was the exact opposite of what Beijing wanted: a counterstrike through more export controls.” This tit-for-tat dynamic risks derailing the fragile truce.

What’s at Stake?

The outcome of these talks will shape not just U.S.-China trade but the global economy. If China maintains its export controls, U.S. industries could face prolonged shortages, higher costs, and production halts. Defense vulnerabilities could worsen, and the green energy transition could stall. Conversely, if the U.S. escalates its own export controls or tariffs, it risks further alienating allies like Japan and South Korea, whose supply chains are also at China’s mercy.

For American consumers, the stakes are tangible: higher prices for electronics, vehicles, and even healthcare equipment. For policymakers, it’s a wake-up call to diversify supply chains and invest in domestic capabilities—steps that should have been taken decades ago when China began cornering the rare earth market.

Looking Ahead

As trade talks continue, the world is watching whether China will loosen its grip on rare earths or double down on its leverage. The U.S. must balance short-term concessions with long-term strategies to reduce dependency, while China must weigh the benefits of its supply chain dominance against the risk of pushing other nations to decouple entirely. Innovations like cerium-based magnets, which avoid restricted heavy rare earths, and recycling technologies offer hope, but they’re not immediate fixes.

The rare earths saga underscores a broader truth: in a globalized economy, no nation is an island. China’s ace card may give it an edge today, but the push for supply chain resilience could reshape the geopolitical landscape tomorrow.

Thought Questions for Readers:

1. Should the U.S. prioritize short-term trade concessions to secure rare earth supplies, or focus on long-term investments in domestic production, even if it takes a decade?

2. How can the U.S. balance its trade war with China without alienating allies like Japan and Europe, who are also impacted by China’s export controls?

3. Could China’s rare earth dominance push the world toward a more diversified supply chain, or will it solidify Beijing’s control over critical minerals?