Rare Earths: A New Trade Battlefield

Olivier Weidenmann is a first year Politics and International relations student at UCL.

Introduction

October 30th, 2025, the press cabin of Air Force One outside of Busan, President Donald J. Trump triumphantly claims that the talks he had with the head of the Chinese state were “on a scale from zero to 10, with 10 being the best, I would say the meeting was a 12." [1]. The reason behind this joy? Xi Jinping just accepted in principle to temporarily stop export controls on rare earths. One might wonder, how does a deal about minerals provoke such joy for who some might call the most powerful man in the world, especially after an hostile trade war that saw tariffs rocket to levels unprecedented? In truth, this deal is part of a much larger story about rare earths, one that sustains the modern world, a story of monopoly and trade wars, and most importantly, a story that is far from being finished.

An essential part of high-tech

Rare earth elements (REEs) are critical to modern technology, they are everywhere around us. The 17 elements are essential to producing everything from the green transition (wind turbines and solar panels), mobility (catalysts and electric car batteries), and are even essential for military usage such as precision missiles and robotics. [2] In short, REEs are critical for the most important parts of sovereignty: industry, energy and military. Dependence on any foreign power for REEs then becomes a huge weakness for a state. We now start to understand why Trump, at the head of a tech-fuelled economy, felt relief when he secured his supply chain for REEs, at least temporarily. Nevertheless, it begs the question: What's the big deal about China?

An absolute Chinese monopoly

Contrary to their name, rare earths are quite abundant and found in many countries, which might suggest that a monopoly is impossible. However, the key resides in controlling the rest of the value chain: mining is the first step, but the process of refining REEs and transforming them into higher value elements like permanent magnets has been monopolised by a single country: China. [3]

The REEs industry was quite diversified globally. Western countries had some part in the supply chain: California’s Mt Pass mine [4] illustrates the West’s capacity to supply its technological expansion. Other countries like Australia also had those skills and industries. The industry disappeared around the 90s-2000s, when Chinese competition made foreign alternatives unviable: Mt Pass mine closed in 2002 because of it. Through a conscious effort by Chinese leaders, the country took control of every part of the supply chain: it now mines about 60% of global REEs, refines about 90% and produces more than 95% of permanent magnets [3][5]. For reference, in Western countries, a 50-60% market share is usually considered monopolistic. For all intents and purposes, China controls all of the REEs supply chain, infrastructure and skills to refine REEs, and it has not hesitated to weaponise this fact.

Chinese weaponisation and its consequences

China first flexed its muscle in 2010, against Japan. Following a territorial dispute, China barred Japan from importing REEs for two months, severely affecting its tech-reliant economy[6]. In 2025, Donald Trump engaged in a trade war against China by raising tariffs. Initially, China’s dependence on American microchips and GPUs used in the AI industry was the main focus of the dispute, but it only took China threatening export controls on REEs to shift the tide in its favour, leading to the Busan meeting mentioned earlier. This episode was much more significant in global affairs, both because of media coverage and because it saw the supposed most powerful country in the world bend its knee immediately when threatened. Under the so-called “0.1% rule”, any export containing more than 0.1% of REEs by weight would need a government export licence. To give an idea of how powerful that rule is, even though the global rare earths export value amounts to only $600 million, they are used in so many valuable products that, annually, between 135 and 270 billion dollars worth of merchandise would need an export license to be sold because of the REEs they contain [3].

Western countries now have to find solutions to reduce their dependence on Chinese rare earths, but China’s complete stranglehold on skills and infrastructure makes it challenging. Japan’s reaction following their 2010 debacle has been a model for the rest of the West, mainly for stockpiling and diversifying. Japanese tech firms now frequently have a year’s worth of rare earths stockpiled in case of trade shocks, a strategy which could be replicated by Western companies[6]. The long-term solution, however, is diversification with a few examples. The only major REEs refinery outside of China is situated in Malaysia, it is operated by Australia’s Lynas, which itself has seen major funding by the Japanese private sector. The Malaysian plant could also soon see a South-Korean magnet factory created next door[5]. The amount of international cooperation is key here: the goal is not to recreate national supply chains but to break the Chinese monopoly. As such, Lynas has received funding from the American state, French startup Carester has signed contracts with multiple European firms to supply them with their future plant, and Mt Pass mine has reopened with plans to refine in addition to mining. Recently, a state-led effort from multiple Western countries has called for “minimum prices” across borders: subsidising REEs production when market prices are too low for profitability [7], allowing Western firms to rival Chinese ones.

The multiplicity of actors and methods deployed to address the dependency problem has been a rare sight in Western policy in recent years, showing the criticality of the situation. Diversification is pushed across the board: new firms, states, economic mechanisms and technologies are getting involved. All these efforts, however, will still take years to make a significant dent, giving China a break from Western pressure.

Conclusion

China’s REEs monopoly can truly be considered a masterpiece in trade diplomacy: by monopolising a small market, it has been able to cheaply develop a single-use weapon to protect itself from Western pressures for years. However, Trump’s trade war lost them the chance to choose when to use that card, and revealed to the West their dependence. More generally, this story is part of the increasing importance of critical resources: Ukraine’s rare earths have been an integral part of peace discussions, and Malaysia has been wielding its own as a tool to develop domestic industry by issuing export bans on the raw material. Yet, when I see that China still holds 90% of the refining of some other non-REEs materials, like germanium and gallium , I can easily predict that we have not seen the end of this story.

Works Cited

1: BBC News (2025), ‘Trump lowers tariffs on China and announces end to 'rare earths roadblock' after Xi meeting’, BBC News, 30 October. Available at: https://www.bbc.com/news/live/cd7ry3x0nvet (Accessed: 26/12/2025).

2: Rareearths.com, ‘Rare earths information page’, Available at: https://rareearths.com/ (Accessed: 26/12/2025).

3: Nguyen-Tien, V., Harper, G. (2025). ‘The US-China rare earths deal shows the importance of critical materials in a new era of strategic interdependence’, LSE USAPP, October 31st. Available at: https://blogs.lse.ac.uk/usappblog/2025/10/31/the-us-china-rare-earths-deal-shows-the-importance-of-critical-materials-in-a-new-era-of-strategic-interdependence/ (Accessed: 26/12/2025).

4: Neuman, S. (2025). ‘Rare earths: Federal backing and tech advances aim to help the U.S. catch up to China’, NPR, 21 November, Available at: https://www.npr.org/2025/11/21/nx-s1-5601696/rare-earths-china-trump-pentagon (Accessed: 26/12/2025).

5: Tan, R., Shepherd, C. (2025) ‘U.S. rare earth ambitions center on Malaysia. But China’s already there.’, Washington Post, 21 November, Available at: https://www.washingtonpost.com/world/2025/11/21/us-china-rare-earth-battle-malaysia/ (Accessed: 26/12/2025).

6: Bowie, B. (2024) ‘Japan’s Responses to China’s Supply Chain Dominance’, RUSI, 5 September. Available at: https://www.rusi.org/explore-our-research/publications/commentary/japans-responses-chinas-supply-chain-dominance#:~:text=Following%20a%20territorial%20dispute%20in,dependent%20industries%20and%20supply%20chains (Accessed: 26/12/2025).

7: O’Caroll, L. (2026) ‘US, UK, EU, Australia and more to meet to discuss critical minerals alliance’, The Guardian, 1 February, Available at: https://www.theguardian.com/business/2026/feb/01/us-uk-eu-australia-critical-minerals-rare-earths-g7-minimum-price (Accessed: 23/02/2026)