China's Rare Earth Gamble: A Double-Edged Sword in the Trade War

Japan Forward

17-07-2025

Since the latest round of the United States-China trade war began, Beijing has wasted no time in playing what it sees as its trump card: restrictions on rare earth exports. Initially, both the US and Europe appeared unprepared to respond effectively, and the Chinese Communist Party (CCP) did gain some short-term leverage at the negotiating table. But how did the CCP secure its monopoly over rare earth minerals? What cost did it impose on the Chinese people? And how can the West break free from this dependence?
Although Washington announced a framework trade deal under which Beijing would speed up rare earth exports to the US, the Financial Times reported that China's export controls now extend beyond officially listed rare earths and magnets. Any product flagged with sensitive keywords is being held at customs for extra inspections and third-party chemical analysis.
On July 1, US Treasury Secretary Scott Bessent urged China to accelerate rare earth magnet exports, as shipments had yet to rebound to their early April levels.
It is clear that the CCP has no intention of abandoning the rare earth weapon. It intends to wield it to the fullest.
Beijing's ability to weaponize rare earths rests on decades of strategy. China is now the world's top holder of rare earth reserves. It also ranks first in production, exports, and domestic consumption. Here is China's share across each stage of the global rare earth supply chain. China's share of the global rare earths market at each stage. (©Inconvenient Truths)
While rare earths were originally an American domain, things changed drastically. In 1949, the US discovered the Mountain Pass mine, an open-pit rare earth site. Between 1965 and 1985, the US led in rare earth refining and supplied most of the global demand. But aggressive price undercutting by China gradually rendered Mountain Pass uncompetitive. It eventually closed in 2002, citing high costs and environmental issues.
Nevertheless, the US retains vast reserves — 13 million tons, or 13% of the global total, according to the US Geological Survey.
In China, large-scale rare earth reserves in Inner Mongolia's Bayan Obo region were confirmed in the mid-20th century. Yet it wasn't until the 1980s that the Chinese government began exploiting their potential.
In 1992, Deng Xiaoping famously said, "The Middle East has oil, China has rare earths." This declaration unleashed a gold rush of rare earth extraction, with central and local governments, private players, and even criminal gangs diving into the sector. From 1985 to 1998, Beijing further boosted the industry with 13 years of export tax rebates.
This policy led to three major consequences:
The boom severely damaged ecosystems. In 2012, China issued its only white paper on rare earths, admitting that outdated mining and refining methods destroyed vegetation, caused soil erosion and acidification, and polluted surface and groundwater. One ton of ion-adsorption rare earths generated 2,000 tons of waste. Even modern in-situ leaching methods continue to release ammonia and heavy metals. In some areas, excessive mining has caused landslides, river blockages, and large-scale disasters.
In the early 1980s, China produced just 20 tons of rare earths annually. By the 1990s, it had surpassed the US, and post-2000, output topped 100,000 tons—90% of global supply. But global demand couldn't keep pace. Chinese companies undercut each other, selling rare earths like pork. Prices by the early 2000s were just one-fourth of 1990 levels, despite Beijing imposing export quotas from 1998 to 2014.
Chaos reigned. From 2006 to 2008, foreign customs data showed Chinese rare earth imports exceeded China's official export figures by 35%–59%. In 2011, the gap reached 120%. Still, Beijing sought to turn rare earths into a strategic asset.
In 2010, during the Diaoyu//Senkaku Islands dispute, China imposed a rare earth embargo on Japan — but failed to achieve its goals. Beijing concluded that fragmented industry control weakened its strategy. It responded by accelerating industry consolidation and nationalization.
In October 2016, a development plan mandated the integration of China's entire rare earth industry into six state-led conglomerates: Chinalco, Northern Rare Earth, Xiamen Tungsten, China Minmetals, Guangdong Rare Earth, and Southern Rare Earth. This integration was completed by December 2016.
On December 23, 2021, Minmetals, Chinalco, and Southern Rare Earth merged to form China Rare Earth Group. On January 1, 2024, it absorbed Guangdong Rare Earth, reducing the six giants to three. By then, Beijing had achieved full control over the industry.
New legal frameworks followed. On September 15, 2024, China imposed export controls on antimony. On October 1, the Rare Earth Management Regulations came into effect. By December 1, so did the Dual-Use Item Export Control Regulations .
By April 2025, with Trump launching another tariff offensive, the CCP was fully prepared. It immediately restricted exports of seven mid-to-heavy rare earth elements: samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. The restrictions took effect the same day, leaving no time for a US or global reaction.
In April 2025, rare earth magnet exports from China dropped to 3,000 tons — down 43% year-on-year, and nearly halved from March's 5,800 tons. In May, exports plunged to 1,238 tons, a 52.9% monthly drop and a 74% yearly decline — the lowest since February 2020.
From January to May, exports totaled just 19,132 tons, down 14.5% year-on-year, the lowest since 2021. The result was a global "rare earth shortage."
The CCP had, in effect, declared its dominance over the global rare earth supply chain.
Despite its grip on rare earths, the costs for China have been enormous:
The 2012 white paper remains largely accurate today. Land is scarred, water is polluted, and recovery efforts are slow and expensive. For every 100 yuan ($14 USD) earned from mining, the cost of environmental restoration might exceed 500 or even 1,000 yuan ($70-$140 USD). A small elite profits while the public bears the burden of a shattered homeland.
Although Beijing proclaims market reforms, in rare earths, it has reverted to full state control. Since 2006, total production and separation quotas are set jointly by the Ministry of Industry and Information Technology and the Ministry of Natural Resources. In February 2025, new regulations placed 92% of supply under direct control. Only designated state-run groups may mine or refine rare earths. Others are banned. The monopoly is absolute.
Rare earths are not truly rare; many nations have deposits. But the CCP seized control through unsustainable price wars.
After the 2010 Japan embargo, the US and others began diversifying. Japan's Hitachi Metals (now Proterial) opened a US factory in 2011 but closed it in 2020 due to cost pressures and US buyer reluctance. The CCP closely watches such moves and floods markets with low-cost supplies to undermine rivals.
Now, amid intensifying US-China rivalry, the West is fighting back.
The US is now leading an effort to create a China-free rare earth supply chain. Despite China's dominance, prices remain low and profits thin. From 2023 to now, export volume has slightly increased. But total revenues have fallen — showing persistent price decline. China's rare earth export quantity and value, 2020–2024. (©Inconvenient Truths)
Beijing's approach — sacrificing the environment and future generations for control — may prove unsustainable. The CCP's rare earth strategy, aimed at global domination, has instead turned into a national liability.
Meanwhile, the West is pushing forward. The Donald Trump administration is relaxing regulations and boosting investment in domestic supply chains. Experts see this as a turning point. Even if the CCP were to lift restrictions and flood the market again, the West is unlikely to retreat.
Ken Mushinski, CEO of Rare Element Resources, confirmed that America's effort to build an independent supply chain is "100% moving forward." His firm, backed by the US Department of Energy, is building a demonstration plant and expects full commercialization in two to three years.
Since January, Trump's second term has seen 11 executive orders supporting mining and refining of critical minerals. In June, the Department of Energy released new NEPA guidelines to simplify permitting. In April, the Department of the Interior included rare earth projects in its fast-track infrastructure list.
Still, with China's entrenched dominance, full US self-sufficiency may take 10–20 years. Until then, avoiding Beijing's chokehold remains a constant challenge.
Author: Jennifer Zeng
Find Jennifer Zeng's articles on JAPAN Forward . Follow her on X (formerly Twitter) and on her blog page, Jennifer's World .