Beijing Wields Rare Earths Power

Beijing's New Gambit: China Wields Rare Earths as a Weapon in Trade Standoff

The delicate ceasefire in the continuous economic dispute between the United States and China has been shattered. During the previous week, the Commerce Ministry in China released a document, a directive labelled 'announcement No. 62 of 2025', that has sent tremors through global markets and diplomatic channels. This directive outlined extensive fresh limitations on the nation's exports of rare earth elements. The manoeuvre dramatically tightens Beijing’s control over the world’s supply of these critical materials and serves as a stark reminder to Washington of the significant leverage China possesses in this high-stakes economic confrontation, effectively targeting a key vulnerability for the Trump administration.

A Near-Monopoly Weaponised

Regarding the processing of rare earth elements, China holds what amounts to a virtual monopoly, and these are indispensable for a vast array of modern technologies. These seventeen metallic elements are crucial components in manufacturing a wide array of products, including fighter aircraft and mobile phones. For instance, one F-35 combat jet reportedly requires over 400 kilograms of rare earth materials for its advanced systems. The updated regulations now state that international firms must secure permission from the Chinese administration to ship goods containing even minute quantities of these minerals, fundamentally altering the landscape for countless industries reliant on these essential components.

Washington's Forceful Response

The American government reacted swiftly and strongly to Beijing's manoeuvre. This action prompted a reaction from Donald Trump, the US President, who issued a threat to levy a supplementary 100% duty on items from China and simultaneously establish export limitations on vital software. This retaliatory posture underscores the gravity with which Washington views the new restrictions. Scott Bessent, the US Treasury Secretary, asserted that Beijing has aimed a significant threat directly at the industrial foundations and supply networks of all free nations, a situation he stated America would not tolerate. The sharp rhetoric signals a significant escalation in the economic conflict.

Beijing's Defence and Clarification

Chinese officials have pushed back against the American accusations. They claimed the US had “intentionally stirred up needless apprehension and misunderstanding” regarding the new mineral controls. A spokesperson from the commerce ministry attempted to soften the blow. The official clarified that as long as the applications for export licenses meet compliance standards and are for non-military purposes, the government will grant approval. This assurance, however, has done little to quell the rising anxiety in international markets. The new measures are extensive, covering not just the raw materials but also the technologies and expertise related to their extraction and processing, giving Beijing unprecedented control over the entire supply chain.

The End of a Tenuous Calm

The latest escalation effectively concludes a several-month period of comparative quiet. A ceasefire, arranged in May by senior American and Chinese negotiators, had temporarily de-escalated tensions and stabilised markets. This period of peace has now been definitively broken. Adding to the friction, the two largest global economies have started levying fresh port charges on one another's vessels this week, further complicating the trade relationship. A meeting is anticipated between President Trump and China's President Xi Jinping before the month's end, and the topic of rare earths is expected to dominate the agenda and potentially redefine the future of global trade.

A Strategic Masterstroke

Experts suggest that China's timing is a calculated strategic move designed to give it a distinct advantage in the upcoming negotiations. Naoise McDonagh, who lectures on international business at Edith Cowan University in Australia, commented that Beijing's updated controls will inevitably jolt the global system because they specifically exploit vulnerabilities within the American supply infrastructure. The decision disrupts the negotiation timeline previously favoured by the Americans, placing them on the defensive. By leveraging its dominance in this critical sector, Beijing has discovered what some analysts are calling its most effective immediate tool for compelling Washington toward a more advantageous trade deal.

The Indispensable Minerals

The strategic importance of these unique minerals cannot be overstated. They are fundamental to creating high-performance magnets for the powertrains of electric vehicles and for wind turbines, key components of the global transition to green energy. China also constitutes roughly seventy percent of the global reserve of metals necessary for these magnets. Furthermore, their role in military technology is critical. The advanced radar, stealth coatings, and motors of modern defence systems are heavily reliant on these elements. This deep-seated dependency gives China a powerful tool in geopolitical negotiations, as a supply disruption could have severe consequences for both economic and national security.

Decades in the Making

The dominant position Beijing holds regarding rare earths is not accidental; it is the result of a decades-long strategic industrial policy. Marina Zhang, who researches critical minerals at the University of Technology in Sydney, notes the nation has cultivated a deep reserve of expertise in this area, and its infrastructure for research and development is considerably more advanced than any of its rivals. She explained that the country has invested heavily in the complex and often environmentally challenging processes of separating and refining these minerals. This long-term vision has allowed China to control not just the extraction of these elements but, more importantly, nearly 90% of global processing capacity.

The Search for Alternatives

In response to China's weaponisation of its supply chain dominance, America and its partners are scrambling to develop alternative sources. The United States government has begun to invest hundreds of millions of dollars to rejuvenate domestic mining and processing operations. Nations such as Australia, possessing its own sizable reserves of rare earths, are seen as potential challengers. However, building a resilient, independent supply chain is a monumental task. Australia's production infrastructure remains underdeveloped, making its processing costs relatively high compared to China's established and highly efficient network.

A Long Road Ahead

Experts believe that matching China’s capacity will be a slow and costly process. Marina Zhang estimates that even with a concerted national effort from America and its allies, it would require a minimum of half a decade to build a comparable processing infrastructure. The technical expertise and specialised equipment required are not easily replicated. This reality gives Beijing a significant short-to-medium-term advantage. While Western nations invest in new mines and refineries, their industries remain vulnerable to any immediate supply disruptions, a fact that Beijing is keenly aware of as it enters the next round of trade talks.

Broadening the Restrictions

The latest export controls announced in October are an expansion of measures first introduced in April. The initial restrictions had led to a worldwide supply shortage before a number of pacts with European and American partners helped relieve the deficits. The updated regulations, however, are far more comprehensive. They apply extraterritorially, meaning goods manufactured outside China using Chinese rare earths or technology may also require a license from Beijing. This unprecedented reach asserts Chinese jurisdiction over global supply chains in a manner that mirrors long-standing US export control policies, marking a significant escalation in regulatory warfare.

Minimal Economic Pain, Maximum Strategic Gain

Despite the potential for a drop in export revenue, commentators suggest China’s own economy is not likely to suffer from this reduction in foreign sales. Sophia Kalantzakos, a professor at New York University, explained that rare earth elements constitute an extremely minor fraction of China's $18.7 trillion annual economy. Certain calculations place the total worth of these exports at under 0.1% of China's annual GDP (gross domestic product). Although the economic contribution of these minerals to China is minimal, their strategic importance is immense, as they offer Beijing greater power in its discussions with America.

A Door Left Open for Talks

Despite the escalating rhetoric, both sides have indicated a willingness to negotiate. Despite levelling an accusation of "betrayal" at China, Scott Bessent has maintained an opening for further talks. He expressed his belief that China is amenable to dialogue and feels positive that the situation can be toned down. During a Thursday discussion with Stephen Schwarzman, chief executive of the American private equity firm Blackstone, Wang Yi, China's Foreign Minister, also underscored the importance of dialogue. The ministry's website reported that Wang stated that the two nations must participate in meaningful dialogue, manage their disagreements appropriately, and foster the steady, sound, and lasting progress of China-US ties.

Preparing the Battlefield

Professor Kalantzakos said that China's recent actions amount to organising its affairs in preparation for the upcoming trade discussions with America. By restricting rare earth shipments, Beijing is ensuring it comes to the negotiating table from a position of strength. This proactive strategy aims to shape the agenda and force concessions from the US on other contentious issues, such as tariffs and technology transfer policies. This has been identified as the most effective tool at its immediate disposal to pressure the Trump administration.

Washington's Countermoves

While Beijing has the advantage for now, Washington possesses several strategic alternatives. From Singapore Management University, Jiao Yang thinks that America could propose reducing tariffs, a move that would probably appeal to Beijing since the economic conflict has severely impacted its manufacturers. Recent official data shows that China's exports destined for the US have declined by 27% compared to twelve months prior. The reliance of China's economy on revenue generated from its vast export machine provides the US with a significant point of leverage.

The Technology Front

Another potential avenue for Washington is to threaten further trade barriers to impede its progress in advancing its technology industry. Professor McDonagh notes that Washington has already taken aim at China's dependency on advanced semiconductors by preventing its ability to buy the most sophisticated chips from Nvidia. This strategy aims to slow China's progress in critical areas such as artificial intelligence and advanced computing. However, the effectiveness of such measures is a subject of debate among experts, who believe they may only have a limited impact in the long run.

Limited Impact of Tech Curbs

Specialists believe this will likely yield only minimal results. Professor McDonagh said that actions directed at Beijing’s technology sector might slow China down but will not bring it to a complete standstill. He added that China has demonstrated through its current economic approach a readiness to endure some hardship to fulfill its longer-term ambitions. The country's policy prioritises self-reliance and technological sovereignty. China can persist even with much higher costs under American export limitations. This resilience contrasts sharply with the potential impact of a rare earth supply cutoff.

The Decisive Difference

The fundamental asymmetry in the current standoff lies in the nature of the leverage each side holds. While US export limitations can slow China's technological advancement, they do not bring its industry to a halt. In contrast, China's control over rare earths gives it the power to potentially paralyse key sectors of the global economy. As Professor McDonagh bluntly puts it, "But should China decide to halt the shipment of these rare earths, that could genuinely paralyze everyone else's industries. That is the crucial distinction." This stark reality will undoubtedly weigh heavily on the minds of negotiators when they meet.

The Australian Alternative

Australia is frequently mentioned as a key player in the global effort to diversify the rare earth supply chain. The country holds the world's sixth-largest reserves of these minerals and is actively working to increase its production and processing capabilities. Companies like Lynas Rare Earths are already significant producers outside of China. The Australian government has committed substantial funding to support the development of a domestic critical minerals industry. However, scaling up these operations to a level that can meaningfully challenge China's dominance will take time and significant investment, leaving the world dependent on Beijing for the foreseeable future.

The Path Forward

The coming weeks are critical for the future of the international economy. The meeting between President Trump and President Xi will be a pivotal moment, determining whether the two economic superpowers can find a path back from the brink of a full-blown trade war. The US administration faces a difficult choice: it can escalate the conflict with more tariffs and restrictions, risking severe disruption to its own economy, or it can seek a compromise that acknowledges China's newfound leverage. For the rest of the world, the dispute is a sobering reminder of the interconnectedness of worldwide supply networks and the profound risks of over-reliance on a single source for critical materials.