China’s Rare Earth Leverage: How Export Controls Are Reshaping The U.S.-China Tech War

 

In 2019, during the early stages of Donald Trump’s trade war with China, President Xi Jinping paid a symbolic visit to a factory in the southeastern Chinese city of Ganzhou. Standing among rows of plain grey metal blocks, he declared, “Rare earths are a vital strategic resource.” That quiet moment now echoes loudly as rare earth minerals take center stage in a renewed trade standoff between the world’s two largest economies.

Nearly six years later, China’s dominance in the global rare earth supply chain has become one of its most powerful tools in a growing economic rivalry with the U.S. These minerals—critical for producing smartphones, electric vehicles, advanced medical equipment, and military technologies—are now subject to strict export controls imposed by Beijing.

A Critical Front Where the U.S. Has Limited Leverage

Unlike traditional tariffs, rare earths represent an area where the U.S. has little immediate power to retaliate. While the elements themselves are relatively common globally, they are expensive, complex, and environmentally challenging to extract and refine. China controls 61% of the world’s rare earth mining and a staggering 92% of the processing capacity, according to the International Energy Agency.

On April 4, China moved to restrict exports of seven types of rare earths and associated products like magnets, requiring companies to obtain government approval. The move came in response to the U.S.’s recent escalation of tariffs on Chinese goods.

These rare earth magnets are crucial to everything from iPhones and MRI machines to F-35 fighter jets and nuclear submarines. The implications of China's restrictions are already rippling across American and European industries.

Immediate Disruption and Industry Shock

Since the announcement, rare earth magnet shipments for at least five U.S. and European companies have been halted, according to industry sources. Many companies were caught off guard and are now scrambling to understand how to comply with the new export licensing system.

John Ormerod, founder of rare earth consultancy JOC, said the sudden policy shift has created confusion, with some shipments “suspended” until further notice.

Joshua Ballard, CEO of USA Rare Earth, highlighted that the restrictions target “heavy” rare earths—rare, more valuable elements that China controls 98% of. “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,” he said.

The controls are far-reaching, applying not only to raw materials but also to alloys and any products containing trace amounts of the regulated elements. As exporters work through the new system, delays and disruptions are expected to persist.

China’s Long Game

China’s dominance in rare earths didn’t happen overnight. The industry began developing in the 1950s and gained real momentum in the 1970s. By leveraging low labor costs, lax environmental regulations, and imported foreign technology, China steadily built its rare earth empire.

Former leader Deng Xiaoping famously declared in 1992, “While there is oil in the Middle East, China has rare earths.” Today, that prophecy is a reality. China's hold on the industry is further bolstered by sustained investment in R&D and large-scale automation, making it difficult for other nations to compete.

As American companies exited the rare earth magnet business in the face of cheaper Chinese alternatives, the U.S. lost not only manufacturing capacity but also critical expertise and infrastructure.

From 2020 to 2023, the U.S. imported 70% of its rare earth needs from China, according to the U.S. Geological Survey.

The U.S. Response: Playing Catch-Up

Beijing’s latest move is not the first time it has used rare earths for geopolitical leverage. In 2010, it cut off exports to Japan during a territorial dispute. More recently, it banned exports of rare earth processing technology and imposed restrictions on other key minerals like gallium.

In response, the U.S. has taken steps to rebuild its own capabilities. Since 2020, the Department of Defense has invested more than $439 million into domestic rare earth supply chains. The goal: create a fully independent mine-to-magnet system capable of meeting defense needs by 2027.

Several American startups and companies see this as a pivotal moment.

Phoenix Tailings, a Massachusetts-based rare earth processing startup, says it has developed a zero-waste, zero-emission method for refining rare earths from ores sourced in the U.S., Canada, and Australia. CEO Nicholas Myers said the company currently produces 40 metric tons annually, with plans to scale up tenfold.

“It’s all domestic processing. We don’t rely on anything from China,” he said.

Meanwhile, USA Rare Earth is constructing a magnet plant in Texas, aiming to produce 5,000 tons of magnets per year. The company also controls a deposit in West Texas rich in the very same minerals China is now restricting.

However, challenges remain. The company is still developing the technology to extract and process the materials from raw rock, a process that will take time and capital.

“The question is how do we do this faster?” said Ballard. “We need to unlock what we have and build as quickly as we can.”

Turning Pressure Into Progress

While the Chinese export controls have created immediate challenges for U.S. industries, they have also sparked a renewed urgency to build a rare earth infrastructure capable of reducing American dependence on China.

With strong government support, strategic investment, and technological innovation, the U.S. may yet turn this crisis into an opportunity—one that reshapes the balance of power in a global economy increasingly defined by advanced technology and critical minerals.