Less than a year into Donald Trump’s first trade war with China, Chinese leader Xi Jinping made a high-profile visit to an unassuming factory in Ganzhou, an industrial city nestled among rolling hills in the country’s southeast. Touring its exhibition hall in 2019, Xi examined row upon row of unremarkable gray metal blocks and declared to his entourage of Communist Party officials: “Rare earths are a vital strategic resource.” Nearly six years on, China’s dominance of the rare earths supply chain has emerged as among its most potent tools in a renewed trade war with the United States president. The minerals – used to power everything from iPhones to electric vehicles – are vital components for the kinds of advanced technology that will define the future. And unlike tariffs, it’s a front where Trump has little room to retaliate in kind. Rare earths are a group of 17 elements that are more abundant than gold and can be found in many countries, including the United States. But they’re difficult, costly and environmentally polluting to extract and process. For decades, the US and other countries have been dependent on Beijing’s supply of these processed metals. China accounts for 61% of global mined rare earth production, but its control over the processing stage is 92% of the global output, according to the International Energy Agency. On April 4, after years of veiled warnings, the Chinese government placed export restrictions on seven types of rare earth minerals, as part of its retaliation against Trump’s initial 34% “reciprocal” tariffs on Chinese goods. The new rules require all companies to secure government permission to export the seven minerals as well as associated products, such as magnets. Magnets made of rare earths enable smaller, more efficient motors and generators used in smartphones, car and jet engines, and MRI machines. They are also essential components in a range of big-ticket weapons, from F-35 stealth fighter jets to nuclear-powered attack submarines. “It’s China showing that it can exert incredible economic might by being strategic … and surgical and really hitting American industry right where it hurts,” said Justin Wolfers, a professor of economics and public policy at the University of Michigan. On Tuesday, Trump ordered a probe into potential tariffs on critical minerals, a broader category of resources that include rare earth elements, to evaluate the impact of these imports on America’s security and resilience. “The dependence of the United States on imports and the vulnerability of our supply chains raises the potential for risks to national security, defense readiness, price stability, and economic prosperity and resilience,” Trump said in an executive order. Since the first Trump administration, the US has been trying to play catch-up and build up its own domestic rare earths supply chain. Three American rare earth industry companies told CNN that they are in the process of expanding production capacities and sourcing materials from US allies and partners. But those efforts will take years to meet the enormous demand from key US industries. Suspended orders For now, the impact of Beijing’s export controls is being swiftly felt on the ground. John Ormerod, founder of rare earth magnet consultancy JOC, told CNN that shipments of rare earth magnets belonging to at least five American and European companies have been halted in China since the imposition of the order. “They were taken by surprise so there’s a lot of confusion on their side and they needed clarification from the authorities of what’s required (to obtain the required export licenses),” he said. Joshua Ballard, CEO of USA Rare Earth, said the export controls focus on “heavy” rare earths, which are 98% controlled by China. (Heavy rare earths are less common, harder to process and more valuable.) This means that companies must now seek Beijing’s approval to deliver these critical materials to key American industries, he added. “Right now, literally these exports are being suspended,” Ballard said. “We don’t hold a lot of back stock of this in inventory here in the US … This is China’s best play. They don’t have much leverage when it comes to tariffs on us, but they sure do have leverage here.” The export controls not only target single materials but also alloys and products where the elements are contained even in minimal quantities, said Thomas Kruemmer, director of the Singapore-based mineral and metal supply chain firm Ginger International Trade and Investment. “A lot of exports now fall under this licensing system,” he added, noting that some delays are expected as exporters navigate the new system. Decades in the making China got an early start in rare earth extraction, beginning in the 1950s, according to state media, but the industry only really began to develop in the late 1970s. During that time, China combined its low labor costs and relatively lax environmental standards with the adoption of foreign technologies, according to Stan Trout, founder of the rare earths and magnetic materials consultancy Spontaneous Materials. “Much of the technology that they brought in was developed here in the US, or in Japan, or in Europe,” he said. “And over time, I’m sure they’ve made improvements to it.” As the country’s rare earth production increased, Beijing gradually understood the strategic importance of the minerals. “There was a recognition that this could be a very important technology for them to master,” Trout added. In 1992, during a visit to one of the country’s main rare earth production hubs in Inner Mongolia, Deng Xiaoping, the former Chinese leader who spearheaded the country’s economic reforms, famously said: “While there is oil in the Middle East, China has rare earths.” Today, China has fulfilled Deng’s vision by dominating the entire supply chain for the materials. While labor costs are now higher, China’s control of the industry has been cemented because of its “willingness to invest in the technology, the R&D, and automation” in an industry that is highly capital-intensive, said Ormerod. There were once American companies making these rare earth magnets. But Ormerod noted that they gradually exited the business as lower-cost Chinese alternatives emerged. “We’ve lost the know-how, we’ve lost the human resource capability and it’s a very capital-intensive operation,” he said. Now, it is difficult to compete with the “Chinese price,” because of the country’s greater economies of scale, as well as government incentives that gave them an additional edge, Ormerod added. Between 2020 and 2023, the US relied on China for 70% of its imports of all rare earth compounds and metals, according to a US Geological Survey report this year. Challenge and opportunity for the US The latest export controls are not the first time Beijing has leveraged its dominance in the industry. In 2010, China halted shipments of rare earths to Japan for nearly two months over a territorial dispute. In late 2023, Beijing imposed a ban on rare earth extraction and separation technologies. Beijing has also curbed exports of other critical minerals that are vital to the economy and global supply chains. Experts and industry insiders said China’s export controls have left the rest of the world with very limited alternatives. But the US is working to fill the gap. Since 2020, the US Department of Defense has awarded more than $439 million to establish domestic rare earth element supply chains. And it has set a goal to develop a sustainable, mine-to-magnet supply chain capable of supporting all US defense requirements by 2027. Some American companies see China’s export controls as an opportunity to expedite domestic production and push for a stronger supply chain outside China. Nicholas Myers, CEO of Phoenix Tailings, a Massachusetts-based rare earth processing start-up, said his company has developed technology to refine rare earth minerals with “zero waste, zero emissions” into metals and metal alloys, sourcing the materials from domestic ores as well as Canada and Australia. His company currently produces 40 metric tons of rare earth metals and alloys per year and aims to scale up to 400 tons with a new facility in New Hampshire. “It’s all domestic processing. We don’t rely on anything from China,” he said. “The United States absolutely has the capabilities to be able to produce the rare earth metals at the timelines that we really need it. We just have to make sure that all the customers, all the policymakers are focused on supporting the industry to really scale up,” Myers added. American businesses are making inroads in parts of the supply chain too. USA Rare Earth is building a magnet plant in Texas, aiming to produce 5,000 tons of rare earth magnets annually; it also owns a deposit rich in heavy rare earths in West Texas, including all the minerals on China’s latest export control list, according to its CEO Ballard. (The deposit is also rich in gallium, a critical material banned by China for export to the US in December.) But the company is still working on the processing technology to extract minerals from the rocks, Ballard said. “The question is how do we do this faster? How do we unlock these assets that we have in the US, as few as they are? We need to unlock what we have and build as quickly as we can,” he said. After years of talk, American companies may finally have the impetus they need to do the difficult work of re-establishing the industry for extracting and processing raw materials that is key to winning a tech race with China.
China has a powerful card to play in its fight against Trump’s trade war
TruthLens AI Suggested Headline:
"China Leverages Rare Earths Dominance Amid U.S. Trade Tensions"
CNN
7.3
TruthLens AI Summary
In the context of escalating trade tensions between the United States and China, the latter's control over the rare earths supply chain has emerged as a crucial leverage point. Rare earths are essential for advanced technologies, powering devices from smartphones to electric vehicles and playing a vital role in military applications. As of now, China dominates the global rare earth market, accounting for 61% of mined production and an impressive 92% of processing capabilities. This dominance was underscored recently when the Chinese government imposed export restrictions on seven types of rare earth minerals in retaliation to the tariffs imposed by the Trump administration. These restrictions require companies to obtain government permission before exporting, effectively placing a chokehold on critical materials needed by American industries. The immediate impact has been felt across various sectors, with shipments of rare earth magnets to several American and European firms being halted, creating confusion and uncertainty as companies scramble to navigate the new regulatory landscape.
The situation reflects a long-standing issue for the U.S., which has relied heavily on Chinese rare earths for decades. While the U.S. has taken steps to bolster its domestic supply chain, including significant investments by the Department of Defense, these efforts will take years to materialize. American companies are beginning to innovate in the rare earths space, with some developing environmentally friendly processing technologies and establishing new facilities to increase production capabilities. However, the challenge remains formidable, as the U.S. must not only catch up technologically but also overcome the economic advantages that China has cultivated over decades. The ongoing trade war has thus catalyzed a renewed urgency in the U.S. to develop a self-sufficient rare earth supply chain, which is critical for national security and technological competitiveness. As both nations navigate this complex landscape, the outcome will significantly influence global supply chains and geopolitical dynamics in the years to come.
TruthLens AI Analysis
The article highlights China's strategic leverage in the ongoing trade tensions with the United States, particularly focusing on rare earth elements. It underlines how the control and processing of these crucial resources position China advantageously against the backdrop of Trump's trade policies.
Strategic Resource Highlighted
The emphasis on rare earths as a vital component for advanced technology underscores their significance in global trade dynamics. With China's dominant position—accounting for 92% of the global processing—this resource becomes a potent weapon in its trade arsenal. The article suggests that while tariffs can be imposed, the U.S. has limited options to retaliate against China's control over rare earths.
Perception Manipulation
By framing the narrative around China’s “powerful card,” the article aims to instill a perception of inevitability regarding China's dominance in this sector. This could evoke a sense of urgency in U.S. policy circles to address the imbalance. The portrayal of rare earths as critical to both consumer technology and military applications amplifies the stakes involved, potentially rallying public support for a more aggressive U.S. trade strategy.
Potential Omissions
It is plausible that the article does not address the environmental and economic consequences of extracting and processing rare earths. This omission could serve to focus public attention on the geopolitical implications while downplaying the ecological impacts or the feasibility of alternative sources outside China.
Manipulative Elements
The language used suggests a narrative that may manipulate perceptions by emphasizing China's power without equally addressing the complexities of the U.S. position or the potential for domestic sourcing of rare earths. The article could be viewed as fostering a sense of alarm regarding U.S. vulnerabilities in technology supply chains.
Comparative Analysis
When compared to other reports on U.S.-China trade relations, this article aligns with a trend of highlighting critical supply chains and technological dependencies. It connects with broader narratives around economic nationalism and security concerns, resonating with audiences who are wary of foreign reliance in vital sectors.
Impact on Society and Economy
The implications of this article are far-reaching, as they may influence public sentiment towards increased investment in domestic rare earth production. It could also propel policymakers to reconsider trade strategies, potentially leading to heightened tensions or a restructuring of trade agreements.
Target Audience
This article likely appeals to those concerned about national security and economic independence, including policymakers, business leaders in the tech and defense sectors, and the general public who are interested in the implications of global trade on domestic security.
Market Implications
Such news can impact stock prices in companies reliant on rare earths, particularly in technology and defense sectors, as investors may react to fears of supply chain disruptions. Companies like Tesla or defense contractors may be particularly sensitive to shifts in rare earth availability.
Global Power Dynamics
The article touches on critical global power dynamics, illustrating how resource control can influence trade relationships. In the context of current geopolitical tensions, it highlights how economic tools are wielded as instruments of power, relevant to ongoing discussions about U.S.-China relations.
AI Involvement
While it's speculative, the writing style may suggest the influence of AI models that generate structured narratives. Such models could have informed the organization of information and the emphasis on specific data points, streamlining the presentation of complex issues.
Overall, the reliability of the article hinges on the accurate representation of facts regarding rare earths and their geopolitical significance. The selective focus on China's dominance without a balanced exploration of countermeasures or alternative strategies can skew perceptions, suggesting a moderate level of manipulativeness. This could be assessed by the framing of issues and the language employed throughout the article.