A new chapter in the US-China trade conflict has emerged, bringing troubling news for nations engaged in commerce with both powers.
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Recent reports indicate that China has urged South Korean companies to halt exports of defense-related products to the United States if those products contain rare earth elements sourced from China.
These rare earth metals, a collection of 17 elements from the periodic table, are essential for an array of technologies, ranging from smartphones to satellites, as well as key components for renewable energy sources like solar panels and wind turbines, not to mention advanced weapon systems, robotics, and rockets. Notably, China dominates the global supply of these critical materials.
“It’s shocking,” remarked Julie Michelle Klinger, a geography professor at the University of Delaware and author of Rare Earth Frontiers. “Under a liberal free trade regime, what right does one country have to dictate another’s business and trade transactions?” She further added, “I think it’s pretty clear that that’s not the world we live in anymore.”
This shift is particularly evident as China responded to former President Donald Trump’s imposition of a staggering 145% tariffs on Chinese goods. Beijing swiftly enacted restrictions via a licensing system on the export of seven heavy rare earths, alongside high-performance magnets that contain them, signaling a willingness to exploit its dominance in this sector.
“China made that list strategically,” noted Mel Sanderson, director of American Rare Earths, speaking to Reuters. “They selected items that are crucial for the US economy.”
During a recent meeting with Tesla investors, CEO Elon Musk—who has significant business interests in China—acknowledged the complications arising from these tensions. He warned that a shortage of magnets could impede the production of his AI-powered humanoid robots designed for mundane tasks such as home assistance and assembly line operations.
Yet Musk isn’t the only one concerned; these magnets, pivotal for operating robotic arms, are also integral to the engines of advanced fighter jets.
Concerns about global dependency on China for vital minerals have echoed in Washington and Brussels for years. Following Russia’s full-scale invasion of Ukraine, Swedish Deputy Prime Minister Ebba Bush stated that Europe’s reliance on Russian gas would “seem like a nice summer breeze” compared to its dependency on China for the green energy transition.
Critical mineral dependency surged to the forefront of the Trump administration, which sought a deal with Ukraine to secure access to its resources, even entertaining the annexation of resource-rich Greenland. However, an essential aspect of this narrative is often overlooked: China’s near-total monopoly on processing these minerals.
Countries can extract these resources from their own land—like Ukraine or Greenland—but they still need to send them to China for refinement and separation. Developing domestic mining and processing capabilities is a long-term endeavor, leading many to conclude that the United States will find itself lagging for the foreseeable future, as indicated in a recent report by the Centre for Strategic and International Studies in Washington, D.C.
The warning signs have been clear, as analysts argue that policymakers should have anticipated this scenario. “I hate to be the person who says this,” Klinger reflected, “but I remember saying over a decade ago, if we were to face a rare supply chain crisis, it would be entirely avoidable.” So, how did the world find itself in this predicament?
What led the US—once a leader in mining and refining—to cede its industry?
The answer, according to Ian Lange, associate professor of mineral economics at the Colorado School of Mines, is straightforward: it simply wasn’t lucrative enough. “It was a conscious decision to divest from a low-value industry,” he explained.
The environmental toll has also played a significant role. A study published by the Harvard International Review in 2021 highlighted that producing just one ton of rare earths generates considerable ecological damage, yielding 13kg of dust, thousands of cubic meters of waste gas, significant volumes of wastewater, and one ton of radioactive residue.
For many years, it appeared more practical for the US, Europe, and others to outsource these processes to China, where state subsidies, lax labor laws, and lower environmental standards allowed for cheaper production.
This strategic vulnerability became glaringly apparent in 2010 when China curtailed exports to Japan over a territorial spat involving a fishing trawler. Although the World Trade Organization ruled against China and the ban was lifted, the resulting shockwaves were felt globally.
Many drew parallels to the oil crisis of 1973 when Middle Eastern oil producers cut off exports to the US in response to its support for Israel during the Yom Kippur War. The aftermath saw global oil prices inflate by over 300%. Former Chinese leader Deng Xiaoping recognized this lesson: “While the Middle East has oil,” he famously declared, “China has rare earths.”
Yet, there’s a key distinction, as Ian Lange pointed out: “Oil deposits are concentrated in a few key regions; however, ‘rare earths’ is a misnomer. They are not all that rare.” In essence, “everyone has good dirt.”
The critical question now is whether nations like the United States are genuinely committed to nurturing their domestic industries—along with the environmental costs they entail—and if they can achieve profitability in a market where cheaper alternatives from China dominate.
Despite the passage of 15 years since the Japan crisis, Lange asserts, the industry hasn’t progressed significantly. “It’s an economic issue,” he stated. “You’re competing against a subsidized monopolist who doesn’t prioritize profits.”
Klinger shared an optimistic perspective, suggesting that China’s export restrictions could be “a gift to Western industry,” noting ongoing efforts to build rare earth supply chains outside China that have yet to achieve the competitive edge necessary to succeed.
Encouragingly, some diversification has begun. Last year, Australian mining firm Lynas launched its first rare earth processing plant in Western Australia. In the US, the Mountain Pass mine in California, which had closed in the 1990s due to toxic waste issues, reopened in 2018 and is now run by MP Materials, which is also establishing a magnet fabrication facility in Fort Worth, Texas.
In Europe, processing facilities have emerged in Estonia and Sweden, while Belgian chemical company Solvay recently initiated a rare earth magnet production line at its plant in La Rochelle, France, projected to meet 30% of Europe’s high-performance magnet demand by 2030.
However, in the four decades since the rare earth industry relocated to China, the country has developed a technological expertise that other nations will find challenging to replicate swiftly. In 2023, Beijing imposed restrictions on foreign access to this technology, a move interpreted partly as retaliation for a Biden-era ban on cutting-edge US computer chip sales to China.
As China wields rare earths as a tool in its trade war arsenal, it remains cautious of overstepping boundaries. Holding the world to ransom could undermine its industry dominance and tarnish its reputation as a trustworthy trade partner, analysts caution.
“Taking dramatic actions like halting exports could have consequences for firms that have invested in China,” Klinger explained. “What happens if they decide to leave?” She added that China is wary of potential labor unrest.
For nations and companies navigating the complexities of doing business in both China and the US, Beijing’s recent warning to South Korea serves as a stark reminder: the intensifying trade war may continue to target critical minerals as a key battleground.
Edited By Ali Musa
Axadle Times International – Monitoring
