Fri, Aug 15, 2025 page7

• China’s Trump card: rare earths

  • By Angela Huyue Zhang / BEIJING
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  China’s weaponization of rare earths has emerged as a major flash point in US-China trade negotiations. These critical materials, especially the high-performance magnets they make possible, are vital components in electric vehicles, wind turbines, industrial robotics and advanced defense systems. In response to China’s strict rare earths export controls, the US has quietly lowered tariffs, relaxed export controls on artificial intelligence chips and even softened visa restrictions for Chinese students.

  At the same time, the US is scrambling to secure alternative supplies. The US Department of Defense last month announced a landmark multibillion-dollar investment package to boost MP Materials, the company behind the flagship rare earths project in the US, but what if, despite massive subsidies and years of effort, the US still cannot escape its dependence on Chinese rare earths?

  Japan offers a cautionary tale.

  In 2010, following a maritime standoff over the Diaoyutai Islands (釣魚台) — called the Senkaku Islands in Japan — China abruptly cut off rare earths exports to Japan. In response, the Japanese government pursued a series of strategic measures: investing in Lynas Rare Earths, an Australian producer; boosting domestic research and development in recycling and substitution; forging its own commercial partnerships with Chinese magnet manufacturers; and building strategic stockpiles to cushion future supply shocks. More than a decade later, Japan still sources more than 70 percent of its rare earths from China.

  China’s rare earths dominance was not built overnight and it will not be easily eroded. Its strength does not lie in hoarding raw materials, but in the industrial capacity to refine, process and produce at scale. Today, China controls between 85 percent and 90 percent of global rare earths refining capacity, and produces about 90 percent of the world’s high-performance rare earth magnets. It is the only nation with a fully vertically integrated rare earths supply chain — from mining to chemical separation to magnet fabrication.

  China’s manufacturing edge has given it not only an industrial lead, but also a technological moat. Between 1950 and 2018, China filed more than 25,000 rare earths-related patents, more than twice the number filed in the US. Decades of hands-on experience in the complex chemistry and metallurgy of rare earths processing have yielded a depth of expertise that Western firms cannot easily replicate. Moreover, in December 2023, the government moved to cement its lead, imposing sweeping export bans on the technologies behind rare earths extraction, separation and magnet production.

  China’s lax environmental regulation has also given its firms a powerful advantage over their Western competitors. The Mountain Pass Rare Earth Mine in California in 2002 was forced to halt refining operations after a toxic waste spill. By contrast, China’s more permissive regulatory environment has allowed rare earths production to expand rapidly, with far lower costs.

  Importantly, rare earths choke points are not fixed; they evolve with technology. China understood this, waiting patiently as Western dependence on rare earth magnets increased exponentially with the global green transition, which created massive demand for electric vehicles and wind turbines.

  Even if the West succeeds in building a parallel supply chain for today’s needs, tomorrow’s choke points might lie elsewhere. Quantum computing, for example, increasingly depends on rare isotopes such as ytterbium-171, as well as on elements such as erbium and yttrium. These emerging applications could become the next pressure points, leaving the US and its allies once again racing to catch up.

  The US must therefore confront an uncomfortable truth: China’s dominance in rare earths is likely to endure for the foreseeable future. Defensive strategies such as supply chain diversification might address some vulnerabilities, but true resilience demands an offensive strategy that enhances the leverage of the US.

  The US still holds many valuable cards. As long as it retains control over technologies or infrastructure that China cannot live without — be it advanced chips, frontier artificial intelligence models and access to the US dollar-based financial system — China has a strong incentive to keep rare earths flowing. For years, though, the US has pursued the opposite course — gradually decoupling and restricting key technology flows to China.

  The US playbook has been to blacklist leading Chinese technology firms and tighten export controls on cutting-edge chips. While these measures initially hobbled Chinese firms such as Huawei and ZTE, slowing the nation’s artificial intelligence development, they have proved difficult to enforce. Riddled with loopholes, they created opportunities for enforcement arbitrage.

  At the same time, US export controls have galvanized efforts in China to build indigenous alternatives, effectively accelerating the rise of national champions such as Huawei. Far from strengthening US leverage over China, US policy is steadily eroding it. If you are Nvidia, losing access to the Chinese market does not just mean forfeiting billions in revenue, it means losing influence over the most important artificial intelligence ecosystem for developers outside the US.

  Recent policy shifts suggest that this realization is starting to take hold. The decision to relax restrictions on sales of Nvidia’s H20 chips to China signals a move away from blanket bans and toward more calibrated engagement. Counterintuitively, such engagement might be a smarter form of de-risking. The more that China relies on US technology, the more deeply the two sides’ supply chains would become entangled and the harder it would become for China to weaponize its strategic assets, including rare earths.

  Angela Huyue Zhang, professor of law at the University of Southern California, is the author of High Wire: How China Regulates Big Tech and Governs Its Economy and Chinese Antitrust Exceptionalism: How the Rise of China Challenges Global Regulation.

  Copyright: Project Syndicate
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