Minerals over ideology? US embraces pragmatic diplomacy to break China’s rare earths grip

Washington under Trump is eager to secure alternative supplies, but Beijing’s dominance appears too strong to break soon, observers say

The Trump administration’s strategic interest in rare earths is pushing the US towards more pragmatic diplomacy as it seeks to rebuild critical mineral supply chains without China, according to observers.

As a result, there had been cooperation with other countries on resource projects even when broader political ties were strained, they said, adding that Beijing’s dominance in the resources appeared too strong to break soon.

One example is the Phalaborwa Rare Earths Project in South Africa, which recently received US$50 million in equity funding from the US International Development Finance Corporation (DFC), the American federal government’s development bank.

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Proposed during the Joe Biden administration in 2023, the deal has advanced despite Donald Trump’s accusations that South Africa is persecuting its white minority, allegations rejected by President Cyril Ramaphosa.

Rainbow Rare Earths, a London-listed mining company helping to develop the deal, said the Phalaborwa project was designed to extract rare earths from mining waste and expected to deliver some highly sought-after minerals.

The minerals include separated neodymium and praseodymium oxide, as well samarium, europium, gadolinium and yttrium, which have been subject to Chinese export controls since April last year.

The project has captured China’s attention.

In a note published last week, Longxing Zhice Jingwei, a think tank based in Shaanxi province, said Washington appeared to be taking a highly pragmatic foreign policy approach to critical minerals.

“Expanding access to critical minerals and restructuring the global supply chain system have been regarded by US decision makers as the supreme national security interests that transcend traditional bilateral diplomatic disputes,” according to the note.

It went on to warn that the direct involvement of US state capital could trigger “a broad follow-on effect on international financial markets”.

“This will not only incentivise a large amount of private capital to withdraw from the China-led system but also accelerate the decoupling process of the global critical minerals supply chain, giving rise to a parallel minerals supply chain camp that is completely independent of China.”

The DFC said it would not comment on specific transactions.

“By investing in critical mineral projects to increase offtake and reduce reliance on strategic competitors, DFC is strengthening both economic and national security, and advancing US interests around the globe,” a DFC official added.

Alvin Camba, a non-resident fellow in the Indo-Pacific Security Initiative at the Washington-based Atlantic Council’s Scowcroft Centre for Strategy and Security, said the Phalaborwa project highlighted the strategic interests behind America’s latest push to reduce China’s dominance over the rare earths sector.

While the Trump administration had dismantled USAID and broadly scaled down American foreign assistance, those moves did not extend to strategic categories of support, such as military financing and security assistance to Israel as well as security cooperation funding and defence investments in the Philippines, Camba added.

“What the Phalaborwa project has demonstrated is not that critical minerals are uniquely privileged but that they have now been formally categorised as a strategic interest in the same tier as defence access and energy security.”

Camba, who is also a lead scientist and director of research at Lyvi, an AI company that focuses on risk assessment and supply chain analysis in critical resources and strategic industries, said the Phalaborwa project fitted a pattern in which the Trump administration had taken equity, guaranteed prices and absorbed commercial risk in ways that previous administrations had not done.

Three months after Beijing began limiting rare earth exports following Trump’s imposition of high tariffs on Chinese goods, the Pentagon announced a deal to buy US$400 million of stock in MP Materials, a Las Vegas-based rare earth mining company.

The deal involved a price floor on neodymium-praseodymium (NdPr) oxide, which is widely considered a cornerstone of the world’s most efficient motors, actuators and generators.

The US Department of Energy now holds a warrant-based equity position in Lithium Americas, and the Department of Commerce has taken a 10 per cent stake in USA Rare Earth, an American supplier of rare earth magnets and heavy rare earth elements.

And in February, Trump announced Project Vault, a stockpile scheme covering all 60 US Geological Survey-listed critical minerals with a US$10 billion loan from the EXIM Bank and US$2 billion in private funding.

Meanwhile, the US Trade and Development Agency has committed US$1.8 million to a feasibility study at the Monte Muambe rare earths project in Mozambique.

Using industrial measures such as price caps or subsidies, the Trump administration has sought to boost the competitiveness of American companies, according to Yu Hongyuan, a professor with Tongji University who specialises in resource and energy security.

However, Yu said the Phalaborwa project, which focuses on extraction, could hardly change the structural problem America faced.

This was particularly true in the midstream sectors, where China held more than 90 per cent of global separation and refining capacity and dominated magnet production, he added.

“The real bottleneck for the US is in the midstream … the processing and refinery, where the US lacks competitiveness not only in technologies, workforce capabilities and prices.”

Camba said a crucial question was whether the US or its allies could build up their own midstream capabilities that would be strong enough to absorb the upstream output.

“Separation technology, the chemistry, the engineering and the trained workforce are concentrated in China after 30 years of state-backed industrial policy,” he said. “The only way to address that concentration is to build the full supply chain end to end.”

Camba said the US was ramping up its investment but that any significant scales in midstream capabilities would take time.

“Equity stakes in upstream projects like Phalaborwa are necessary for securing the inputs. Neither substitutes for the industrial mobilisation that has to happen at the midstream,” he added.

“The [Trump] administration’s pragmatism is real, and the equity-and-offtake model is the right instrument. But the test is whether it is matched by midstream investment at scale. Without that, projects like Phalaborwa risk feeding the same supply chain they were meant to displace.”