The US-China rare earth rivalry and the rise of a new geopolitics of resources

When US President Donald Trump imposed steep tariffs on the entire world on April 2, 2025, he called that “Liberation Day.”

The very next day, China moved to retaliate by applying export controls to rare earths, sending tensions between the two countries skyward. That led to an escalating exchange of punitive rates, with US’ tariffs on China rising to 145% and China’s tariffs on the US hitting 125% at one point.

But within a few weeks, the situation moved in a direction Trump hadn’t predicted. Ford Motor Company and other major US companies cut production as they struggled to source rare earths. Such disruptions in the supply chain prompted big business to lean on Trump, who eventually had to slash tariffs.

China wasn’t ready to play nice, though. In mid-October 2025, about two weeks before Trump’s summit with Chinese leader Xi Jinping, Beijing abruptly announced it was tightening export controls on rare earths and other critical minerals.

The new rules required all countries to receive permission from the Chinese authorities for trade in any goods that contain at least 0.1% of Chinese rare earths. They would have applied, for example, to Samsung Electronics’ exports of smartphones to Europe.

The move, which was reminiscent of the US’ “secondary boycott” concept, was obviously designed to maximize Chinese leverage ahead of Xi’s summit with Trump. In the end, the two leaders agreed to a one-year truce in their trade war. But even though China soon suspended its export controls on rare earths, the threat proved to be an inflection point driving countries around the world to reset their policies and investments.
 
Critical minerals, the oil of the 21st century

This showdown neatly illustrates the geopolitical status of critical minerals. If control of oil resources was a critical part of the great powers’ diplomacy and military strategy in the 20th century, those clashes are now occurring over critical minerals.

Just as oil was a crucial building block for the transportation, power and chemical industries and an indispensable resource for waging war, critical minerals are essential not only for traditional industries such as electronics, automobiles and batteries but also for emerging industries like semiconductors, artificial intelligence and renewable energy and cutting-edge weapon systems such as F-35 fighters and long-range missiles.

Notably, permanent magnets made from rare earths are key components that determine the performance of such advanced equipment as radar, smart bombs, electric vehicle motors and wind turbines.

To be sure, that doesn’t mean that critical minerals will completely replace petroleum. The International Energy Agency (IEA) projects that petroleum consumption will still exhibit a modest increase all the way in 2050. But given technological breakthroughs and the trend of decarbonization, the strategic value of critical minerals is sure to grow with time.

The IEA says that demand for minerals related to the energy transition could be as much as 30 times greater in 2040 than in 2010. In short, critical minerals, rather than carbon, will become the “new oil” as more electric vehicles are bought and sold, renewable energy is generated, and power distribution networks are expanded.

The geopolitics of critical minerals are fundamentally different from petroleum. While petroleum is distributed in a comparatively wide range of areas — including the Middle East, Russia, the US and South America — critical minerals are concentrated in China and a handful of other countries.

Refining and processing these minerals, which are regarded as even more important than mining them, demands a high level of industrial capability, and China has an overwhelming advantage in that area.

In a report titled “Global Critical Minerals Outlook 2025,” the IEA said that while supply chain diversification is a major condition for energy security, critical mineral refining and processing have actually seen an increase in concentration in recent years. For example, the market share of the top three countries in critical mineral refining has risen from 82% in 2020 to 86% in 2024.

China is the world’s biggest producer of 19 of the 20 critical minerals related to energy, and it controls an average of 70% of the global refining capacity for those minerals.

Considering that the Organization of the Petroleum Exporting Countries currently controls about 35% of the world’s crude oil production and only controlled 50% even during the 1970s energy crisis, that’s an unprecedented degree of concentration.

Just as OPEC exercised its influence by cutting oil production in the 20th century, China is effectively weaponizing its bottleneck in critical minerals to build a new resource cartel in the 21st century. China’s structural advantages leave the US with few ways to respond.
 
The US lays the groundwork for a comeback

US government bodies including the Department of Defense, Department of Commerce, Department of Energy, International Development Finance Corporation and Export-Import Bank are pouring money across supply chains. For its part, the State Department is striking critical mineral deals with a range of countries that have critical mineral procurement bureaus and refining/processing capabilities.

The US’ chief goal in the area of rare earths is to build an integrated “mine to magnet” supply chain. The US Defense Department is buying equity stakes in domestic producers of rare earths and providing long-term buying contracts. It’s also setting price floors for purchase volumes to guarantee profitability.

The main beneficiary of these efforts is MP Materials, in which the Defense Department has bought a US$400 million equity stake. The Pentagon has already pledged a decade’s worth of purchases at no lower than US$110 per kilogram, which should sustain domestic production despite China’s low-price offensive.

In addition, MP Materials has signed a contract for building its “10X” facility with an expected annual output of around 10,000 tons of magnets. This deal represents an effort by the US government to select a specific company for vertical integration across mining, refining and magnet production, in a classic example of the state-led industrial policy the US has long criticized in other countries.

MP Materials had also received government funding under the previous Biden administration, but the US failed to make much progress on rare earth refining and battery production at the time because of Chinese companies’ aggressive price competition. But support under the second Trump administration reflects a major overhaul of previous policy.

The International Development Finance Corporation (DFC), a federal investment organization, is also set to play a critical role. While the DFC used to support infrastructure development and mitigate poverty in the underdeveloped world, it has more recently been reorienting toward loans and equity purchases in strategic areas such as critical minerals, energy and cutting-edge technology.

Secretary of State Marco Rubio and Secretary of Commerce Howard Lutnick both have seats on the DFC’s board.

The DFC’s lending limit was increased from US$60 billion to US$205 billion, nearing the lending total of the World Bank. That leads to a paradoxical situation in which the US is expanding its investment overseas even after strong-arming Korea and Japan to pledge hundreds of billions of dollars of investment in US infrastructure projects.

Some of the DFC’s main investments are a rare earths mine in Brazil, a critical minerals project in Uzbekistan, tungsten in Kazakhstan, graphite and raw earths in Australia, and copper and cobalt mines in the Democratic Republic of the Congo.

In addition, the DFC is lending money to railroads in Angola and the Congo as it builds export routes connecting resources in the interior of Africa to ports on the coast.

These American initiatives appear to be a response to China’s Belt and Road Initiative for connecting China with Asia, Africa and Europe. They’re also a belated reckoning with the fact that a large number of resource projects in Africa — once the playground of the US and Europe — have been taken over by Chinese state-owned enterprises over the past 20 years.
 
Can Trump achieve rare earth independence in two years?

Trump boasted in a media interview following his summit with Xi that the US could tackle the rare earths issue within two years. But reality suggests otherwise.

Last year, the US mined 8,900 tons of rare earth from Mountain Pass in California, its biggest yield in decades. Even so, that represented just one-third of the US’ total consumption. The remaining 18,100 tons had to be imported from such countries as China (71%), Malaysia (13%) and Japan (5%).

Notably, China controls around 90% of the mining of the heavy rare earths needed for high-performance batteries with defense applications, as well as the majority of the extraction and refining technology. The US has been making headway on acquiring raw materials through equity investments in heavy rare earth mines in Brazil and other countries, but it’s still in the initial phase of acquiring extraction and refining technology.

The Center for Strategic and International Studies said that several new extraction and refining technologies have shown promise in the pilot phase, but have not proven whether they can operate with stability and cost efficiency on an industrial scale.

The IEA projects that in terms of permanent magnet production capability, China will maintain an overwhelming advantage with a yearly production of 300,000 tons in 2030, while the US’ yearly output will be 20,000 tons, or just 7% of the Chinese figure. But the IEA believes that massive investment could make the US the world’s second-largest producer of magnets during the 2030s.

Contrary to Trump’s hopes, many experts believe it will take the US until the late 2020s to adequately reduce its dependence on China and at least a decade to achieve independence across the industrial ecosystem.

Critical minerals bring wealth and influence to their producers, but also the risk of a new kind of “resource curse.” Surging demand for critical minerals such as rare earths, nickel, and cobalt could disrupt governance, the environment, and the debt structure in major producing countries.

While demand for these resources creates instant cash flow, that can exacerbate corruption, degrade the environment, and provoke social conflict in countries where institutions are weak.

Going forward, the US and China are likely to compete ever more fiercely to bring countries with large reserves of critical minerals into their respective spheres of influence.

The US and China’s clash over critical minerals goes beyond give-and-take over tariffs and represents a new geopolitics of resources in which countries around the world are forced to choose which superpower to trust and which supply chain to join.