China's rare earth dominance: A new front in trade war

The trade war between the USA and China is intensifying. The carousel of tariffs is escalating the economic conflict between the two powers. Beijing is responding reciprocally, matching American tariffs with equivalent rates. In response to restrictions related to semiconductors, it has limited the export of key raw materials.

China has a potent arsenal in its exports of rare earth metals and their refinement. It is unclear to what extent they are willing to exert pressure further. This conflict is escalating. The question is how far Trump will go and whether America can maintain its resolve when Beijing opts for the "nuclear option," as noted by Filip Rudnik, an analyst at the Centre for Eastern Studies.

Deng Xiaoping, one of China's most influential politicians in the 1990s, famously stated that just as the Middle East has its oil, China has rare earth elements (REE). China has dominated the refinement process and now controls the market. With the increasing restrictions imposed by the American administration on trade with China, Beijing is responding by progressively controlling the export of elements such as gallium and germanium, alongside crucial minerals like tungsten. On 10th April, seven more rare earth-based product types were added to the previous list, including samarium, gadolinium, and terbium. This list could be expanded to include other rare earth metals, such as tantalum, which is used in producing electrolytic capacitors.

China has also imposed restrictions on neodymium and praseodymium, which are primarily utilised to make magnets. Those derived from rare earths are much stronger and more valuable, and their application is vital for producing electric vehicles.

As Maciej Kalwasiński from OSW reminded us in early April, while raw materials can be sourced from various places globally, it is China that has developed an industrial base for their processing, from which the USA has benefited for years.

Documented production in China (latest data from 2023) was 240,000 metric tonnes. The USA ranked second with 43,000 metric tonnes, followed by Burma with 38,000, and Australia with 18,000 metric tonnes. As a result, China holds 87 percent of the world's refining capacity.

Approximately 90 percent of rare earth magnets are produced in China, and 99.9 percent of the world's dysprosium, which chip manufacturer Nvidia uses to create capacitors, is extracted in China, notes "The New York Times."

As stated in the Critical Raw Materials Alliance (CRMA) report, China accounts for 80 percent of the world's gallium production and 60 percent of germanium.

The gap between the USA and China is vast. According to statistics from early January, China has 44 million metric tonnes of mineable rare earth metals. Following China, Vietnam has 22 million metric tonnes, and Brazil has 21 million metric tonnes. The United States has access to 1.8 million metric tonnes.

The tool of pressure is further restricting the export of critical raw materials on which the USA heavily relies, such as graphite or rare earth metals, crucial for the defence industry and green technologies, as enumerated in a conversation with money.pl by Dominik Kopiński from PIE in early April.

China has better sensed the economic opportunity. Notably, as the NYT reminded us, back in the 1980s, the US was the leader in the production of rare earth elements, accounting for nearly a third of the global market.

Today, only one large rare earth element mine operates in the USA, at Mountain Pass in California, which extracts about 15 percent of the world's rare earth resources.

Smaller operations are involved in obtaining, among other things, bastnaesite, a fluoro-carbonate mineral from the rare-earth elements group, at the Mountain Pass mine in California. Monazite was stored as a separate concentrate or included as an associated mineral in heavy sands concentrates in the southeastern United States. Mixed rare earth compounds were also produced in the western United States. The estimated value of rare earth compounds and metals imported by the USA in 2024 was €153 million, an 11 percent decrease compared to €168 million in 2023, according to the Mineral Commodity Summaries 2025 (USGS) publication.

For years, the USA has relied on imports of rare earth compounds and metals. Seventy percent of the imports come from China, 13 percent from Malaysia, 6 percent from Japan, and 5 percent from Estonia. Other sources combined account for 6 percent.

Their significance for the American economy is vast, as they are used to produce a wide range of goods, from popular LED lights to photovoltaic panels, electric car engines, and chips powering AI servers and smartphones, as well as components for drones, cruise missiles, and fighter jets.

In the event of a complete halt in the supply of strong magnets made from rare earth metals, the heart of the US automotive industry, namely Detroit, would suffer particularly. There would be a shortage of chemicals for producing jet engines, lasers, car headlights, and certain types of spark plugs or capacitors.

Some American companies have been stockpiling rare earth elements for years in anticipation of a trade war, but it is unclear how long these reserves will last if China halts its exports, according to the NYT.

The competition for access to rare earths has become a crucial element of politics. Trump is well aware of the importance of becoming independent of China and gaining control over valuable resources, notes Filip Rudnik.

That's why Trump is eager to sign an agreement with Ukraine. On Thursday, the USA and Ukraine signed a letter of intent regarding a deal for the USA to exploit Ukrainian mineral deposits.

Ukraine's lithium deposits are among the largest in Europe, estimated at 500,000 metric tonnes. Lithium is essential for producing batteries for electric vehicles, among other applications. There are also deposits of manganese, nickel, and cobalt in these areas.

Besides Ukraine, other regions are also considered by the Trump administration as potential areas for American mining activity. The Americans see a similar role for Greenland's lands.

The problem could be the Greenlanders themselves, who may not want to be a USA colony and a giant mine of valuable deposits, adds Rudnik.

Moscow has also seized the opportunity. Putin offers Donald Trump resources, including rare earth minerals and shares in aluminium and Arctic projects, trying to outdo Ukraine's offer.

- Russia is closely watching the USA's confrontation with China. They are ready to take action. They will try to exploit the situation if China attacks the USA with full force. Then they will offer Trump even more. This was also Kirill Dmitriev's mission in Washington. They will lead America by the nose, tempting with resources and ventures, emphasises the OSW analyst.

However, according to Rudnik, this would be akin to buying a "pig in a poke." The Russians know entirely what they have. They can precisely determine resources. The problem lies in deposits being far from export corridors; starting such projects will be very costly and time-consuming. It would be a very distant investment without certainty of return. Besides, Russian rare earth metals are estimated at 10 million metric tonnes, representing 2 percent of global resources. Additionally, Russia lacks the refining capability that China possesses. Despite the rapprochement with Moscow, they do not share technology, concludes Rudnik.