The U.S.-China trade war, particularly in the context of rare earth metals, represents a critical chapter in the global economic rivalry, underscoring the strategic importance of these materials to the 21st-century technological landscape. Rare earth metals, a group of 17 elements, including lithium, cobalt, and neodymium, are essential for producing everything from smartphones to electric vehicles, wind turbines, and military equipment. As both the U.S. and China are leading global economic players, their competition over these critical resources has become an important aspect of the broader trade war.
The U.S.-China trade war, which officially began in 2018 under the Trump administration, was a response to a variety of economic grievances that the U.S. held against China. These included allegations of unfair trade practices such as intellectual property theft, forced technology transfers, and the state-backed subsidies granted to Chinese industries. The Trump administration's economic policy, marked by its "America First" stance, aimed to curb China’s growing economic power by using tariffs as a weapon to reduce the trade deficit and encourage reshoring of manufacturing jobs. In retaliation, China imposed tariffs on hundreds of billions of dollars' worth of U.S. goods, and both countries initiated a series of retaliatory measures that spanned multiple sectors, from agriculture to technology.
A particularly significant development in this trade conflict was the heightened focus on rare earth metals. These metals, which are indispensable in a wide array of advanced technologies such as electronics, renewable energy solutions, and military applications, became a point of contention due to China’s near-monopoly on their production and processing. As China’s dominance in the rare earth market grew, the U.S. found itself at a strategic disadvantage, relying heavily on China for the materials necessary to fuel its high-tech industries.
By 2019, China controlled over 70% of the global supply of rare earth metals, with a significant portion of these metals being processed and refined within its borders. China’s dominance was not only the result of having rich natural deposits of rare earths but also due to extensive investments in mining infrastructure, processing facilities, and, critically, state-backed policies that allowed for economies of scale and long-term strategic advantages in securing global supply chains. Furthermore, China’s tight control over the global supply chain was bolstered by its ability to regulate exports of rare earths, imposing restrictions and export quotas as a tool of leverage in its trade relations, especially with the U.S.
One notable example of China flexing its rare earth muscle occurred in 2010, when it reduced its rare earth exports to Japan amidst a diplomatic dispute. This event highlighted China’s leverage over global rare earth markets and raised alarms in countries like the U.S. and Japan, which rely heavily on these materials for technological development. By controlling both the raw production and processing stages of rare earths, China positioned itself as an indispensable player in global supply chains, especially as the demand for advanced technologies surged globally.
The trade war between the U.S. and China had far-reaching consequences for the rare earth sector. As China’s control over rare earth exports became a focal point of the trade conflict, the U.S. sought to reduce its dependence on Chinese sources. This drive was largely motivated by the growing recognition of the strategic significance of rare earths. The U.S. military, in particular, is heavily reliant on rare earths for the production of advanced weapons systems, while industries such as electronics, renewable energy, and electric vehicles also require these materials to meet increasing consumer and technological demands.
A pivotal moment in the trade war came with the implementation of Trumpian tariffs on Chinese goods. The Trump administration’s tariffs were part of a broader strategy to push China to change its trade practices and protect U.S. intellectual property. In response, China threatened to restrict its rare earth exports to the U.S., which could have disastrous effects on American manufacturers. The mere threat of such restrictions led to significant price increases for rare earths in global markets, as the U.S. scrambled to secure alternative sources of supply. This period marked a turning point for the U.S., which began to accelerate efforts to reduce its dependency on Chinese rare earths. In particular, the U.S. government pushed for increased investment in domestic mining and processing capabilities, including efforts to revive mining operations in states like California, where rare earth deposits have been historically underutilized.
Alongside domestic initiatives, the U.S. explored alternatives to China by forging agreements with other countries to diversify its supply chains. Australia, which is the second-largest producer of rare earths, emerged as a critical partner, and the U.S. sought to establish stronger trade relations with other rare earth producers like Canada, Vietnam, and Brazil. Despite these efforts, China’s dominance remained a significant challenge, particularly in the refining and processing stages of the supply chain, where the U.S. lagged behind in capability.
China’s broader industrial strategy, encapsulated in its "Made in China 2025" (MIC 2025) initiative, plays a central role in understanding the intersection between rare earths and the trade war. The MIC 2025 plan aims to transform China into a global leader in advanced manufacturing by investing heavily in key high-tech industries such as robotics, artificial intelligence, aerospace, and clean energy. These sectors rely heavily on rare earth metals, which are integral to the production of components like magnets, batteries, and other advanced materials.
The U.S. viewed China’s MIC 2025 initiative as a direct challenge to its own technological leadership, particularly as China sought to use its control over rare earths to fuel its rise in these critical industries. By giving state-backed subsidies to high-tech industries and ensuring access to key resources, including rare earths, China was positioning itself to outpace the U.S. in the global technology race. This geopolitical and economic competition intensified as both countries sought to secure the materials necessary for their respective industrial ambitions.
In response, the U.S. took steps to counter China’s growing influence in the rare earth sector. This included imposing tariffs on Chinese rare earth exports and seeking to reduce the U.S.'s dependence on Chinese supplies. The U.S. also increased funding for rare earth exploration projects within its borders and launched efforts to streamline the regulatory environment for domestic rare earth mining and processing. However, these efforts faced significant challenges, including environmental concerns and the time it takes to develop new mining and processing facilities.
The U.S.-China trade war’s impact on rare earths has had profound economic and strategic consequences. For the U.S., the reliance on Chinese rare earths has exposed vulnerabilities in its industrial infrastructure, particularly in critical sectors such as defense and technology. The trade war prompted the U.S. to re-evaluate its approach to supply chain security, which has led to increased efforts to develop domestic sources of rare earths and to create alternative global partnerships. However, these efforts are not without obstacles, as China’s established processing capabilities and large-scale production give it a lasting advantage in the rare earth market.
On the other hand, China’s control over the rare earth supply chain gives it significant geopolitical leverage, allowing it to influence global trade dynamics. The trade war highlighted the fact that rare earths are not just a commercial commodity but also a strategic resource, with far-reaching implications for national security and technological dominance. By using rare earths as a tool of leverage, China is able to position itself as an indispensable player in the global economy, while forcing the U.S. and other countries to find ways to reduce their dependency on Chinese supplies.
In recent developments, China has implemented a ban on the export of specific rare earth minerals, including gallium, germanium, antimony, and graphite, to the United States. This ban is seen as a direct response to the Biden administration’s imposition of stricter limitations on Chinese access to advanced American technologies, particularly in areas like semiconductors. As China has increasingly consolidated its control over these vital minerals, the export ban is a significant escalation in the ongoing technological rivalry between the two countries. Gallium and germanium are essential for semiconductor production, while antimony and graphite are crucial for batteries and various high-tech applications.
This action by China is indicative of a broader pattern of reciprocal retaliations in the trade conflict, with the potential to disrupt global supply chains. The restriction on these minerals could significantly impact industries reliant on them, from electronics to clean energy technologies, and could further exacerbate the technological decoupling between the U.S. and China. As both nations maneuver for dominance in critical technologies, the implications of these trade measures are vast, potentially stalling innovation and shifting global supply chain dynamics.
Looking ahead, the U.S.-China trade war could intensify further with the possibility of new tariffs by the Trump administration in 2025, potentially reaching up to 100% on select Chinese imports, including rare earths. These tariffs would escalate the already complex trade battle and could disrupt global markets for rare earths, semiconductor materials, and other key technological inputs. The looming prospect of such high tariffs raises concerns about the stability of international trade and the economic costs of further decoupling between the U.S. and China.
The U.S.-China trade war has highlighted the growing importance of rare earths in global geopolitics. The competition for these critical materials is likely to intensify as demand continues to rise, driven by the increasing adoption of electric vehicles, renewable energy technologies, and other high-tech industries. As the global race for technological supremacy heats up, countries are increasingly looking for ways to secure their own rare earth supply chains and reduce dependence on China.
In addition to efforts by the U.S., other nations, including Japan, India, and the European Union, are taking steps to secure alternative sources of rare earths. These countries are seeking to diversify their supply chains through domestic production, international partnerships, and technological innovations that reduce reliance on raw materials. The U.S.-China trade war may, in this regard, act as a catalyst for the development of a more diverse and competitive global rare earth market.
While China could use its dominance in REE production as a bargaining chip in the trade war, this strategy carries significant risks. A prolonged restriction could backfire by accelerating global efforts to reduce reliance on Chinese REEs. For the US, the trade war highlights the need to address its strategic vulnerabilities in critical material supplies, fostering innovation and diversification in REE sourcing and usage.
Ultimately, the U.S.-China trade war over rare earths shows the critical importance of these materials in the 21st century. It is not simply a dispute over raw materials, but rather a struggle for control over the future of global technological power. The outcome of this competition will shape the economic and strategic landscape for years to come.
Erdey, L., Fenyves, V., Márkus, Á., & Tőkés, T. (2019). China Does Not Want a Trade War–The Case for Rare Earth Elements. Polgári Szemle: Gazdasági és Társadalmi Folyóirat, 15(4-6), 281-295.
Ju, J., Ma, H., Wang, Z., & Zhu, X. (2024). Trade wars and industrial policy competitions: Understanding the US-China economic conflicts. Journal of Monetary Economics, 141, 42-58.
Márkus, L. E. V. F. Á., & Tőkés, T. China Does Not Want a Trade War–The Case for Rare Earth Elements.