If there is moment of origin for the China shock that has hit the United States, it is events around rare earths in the late summer and early autumn of 2010. That August, China reduced its export quotas for the rest of the year. The following month, it stopped selling rare earths to Japan after the Japanese Coastal Guard detained the captain of a Chinese fishing trawler that had struck one of its vessels in the waters around the territorially-disputed Senkaku Islands. Within four days of losing access to metals on which the country’s electronics and car industries depended, Japan backed down. But China retained the embargo for another five weeks. By November, rare earth prices had soared, and they would not return to their pre-crisis level for months.
Since China accounted for more than 90% of global production in 2010, nothing could be the same again for consumers of the 17 rare-earth elements. In 2011, a US House of Representatives sub-committee held hearings on the national security implications of China’s monopoly. In 2012, the US, Japan, and the EU launched a case against Beijing’s restrictions at the World Trade Organisation. After losing in Geneva, China agreed to dismantle the quota regime, but Beijing would no longer be trusted as a reliable long-term trading partner.
Yet, even as China’s share of global production has fallen to around 70%, its power as a rare earth exporter has loomed more seismically over the world economy for the past few months than ever before. On 4 April, China announced new licence requirements for exporting seven specific rare earths and associated magnets to all countries in response to Trump hiking tariffs on Chinese goods to 54% earlier that week. One of these metals, samarium, is exclusively produced and processed in China, and it is essential for, among other military weapons, the Pentagon’s F-35 fighter jets.
The result was an immediate slump in imports. At the start of May, America’s auto-industry representatives wrote to four Trump administration officials, warning of imminent disruption to the sector. Within days, the President had reversed course, albeit dressing up the agreement in Geneva as a “historic trade win”. When that truce failed, Trump’s officials blamed China for not delivering on the rare earth measures. The economic pressure China was placing on the US and European economies became highly visible. In early June, Ford revealed that it had halted production at several factories the previous month because of a shortage of rare earth magnets. Meanwhile, the European Commissioner for Trade and Economic Security, Maroš Šefčovič, complained the EU car industry faced an “alarming situation”. In boasting about a second agreement desperately struck in London on 11 June, Trump emphasised that this time China would supply rare earths “up front”. Still, supply remained tight, requiring the administration to seek a third agreement within little over a month, with uncertainty throughout over samarium imports, even as the situation eased for car makers.
On the surface, China’s rare earth leverage seems the result of Beijing’s careful exploitation of geological good fortune. China possesses nearly half of the world’s known rare-earth deposits. As the former Chinese leader Deng Xiaoping once quipped, “the Middle East has oil and China has rare earths”.
But China’s pre-eminence is at least as much the story of an earlier US presumption that Washington could safely avoid environmentally toxic mining at home by importing these metals, often found with uranium, from across the Pacific. Before the early Nineties, most of the world supply of rare earths was extracted by a US company, Molycorp, from Mountain Pass in California. Rare earth magnets unveil a similar story of complacent US outsourcing. In 2002, Magnequench, the last surviving US producer, was sold to a Chinese company and the plant in Indiana was closed four years later. Politically, the vulnerability of this bet on a Chimerican resource trade did not go unnoticed. When Hillary Clinton ran for the Democratic nomination in 2008, she castigated the Bush administration for the fact “we now have to buy magnets for our bombs from China”. But the politicians who rhetorically scored points from offshoring offered no serious plan of action for reshoring production.
“The politicians who rhetorically scored points from offshoring offered no serious plan of action for reshoring production.”
Whatever the fright in 2010, there was no systematic reversal of course until it was too late. In 2012, Molycorp re-opened Mountain Pass only to declare bankruptcy just three years afterwards. When the Las-Vegas-based MP Materials then acquired the mines, it sent the minerals to China for refining. Although in 2022 the Pentagon awarded the Australian mining company Lynas $35 million to build a processing plant in Texas, MP Materials’ practices only stopped after China placed 125% tariffs on the exports as part of its measures in April. The alternative depends on a partnership with a Saudi company formed this year. On the magnets side, MP Materials launched an operation in Fort Worth in 2022, but if the plant operates to schedule at the end of this year, it will be producing just 0.0003% of what China did in 2024.
Such is the scale of the present emergency, the Pentagon has agreed this month to become MP Materials’ largest shareholder. This injection of federal capital will fund a second magnet plant. Explaining the deal, MP Materials’ CEO said it is the means required to defeat “Chinese mercantilism”. The question is whether this move will be any more effective than the executive order Trump issued in 2020 to build domestic capacity for the same reason and which did nothing to avert the current crisis.
If the damage China can cause as an exporter is now as clear as crystal, the significance of China’s own need for rare earths is still underrated. Back in 2010, most consumption occurred in Japan and the United States. But Made in China 2025 was in this respect, as in so much else, transformative. Almost all the 10 sectors identified in Xi Jinping’s decade-long strategy to make China a high-tech manufacturing superpower relied on rare earths or rare earth magnets. Realising that objective has made China a net importer of rare earths. This change renders China a competitor for the United States in developing new mining as Washington urgently seeks to escape reliance on China.
At the moment, more than half of China’s imports come from Myanmar, which is relatively rich in the heavier rare earths. This dependency embroils China in Myanmar’s political instability, especially since the Kachin Independence Army — the northern armed rebels seeking autonomy — seized control of the country’s main mines in 2024. Even as China has inflicted rare earth pain on Western countries this year, it has faced its own sharp decline in imports. Consequently, China too wants new rare earth opportunities.
This dynamic alone accounts for a significant amount of the geopolitical tension between the US and China, especially in the Arctic. Since 2016, a Chinese company has been the largest single stake in the Energy Transition Minerals, which has the exploration licence for the rare earth deposits at Kvanefjeld in southern Greenland. The Chinese commercial presence on Greenland is far from the only reason for Trump’s ambition to seize sovereignty over the island. But it certainly intensifies the interest, a reality evident now the US-Export Import Bank has offered Critical Metals Corp, a subsidiary of an Australian mining company, a $120 million loan to accelerate a rare earths project in the same vicinity.
There are no immediate prospects for mining starting on Greenland. The physical conditions around the deposits are exceptionally tough and, in 2021, the government in Nuuk banned uranium mining without which the deposits at Kvanejfeld cannot be extracted. But, as the geographer Julie Klinger recounts in her book Rare Earth Frontiers, long-term persistence amid adversity is the origin story of China’s rare earths industry. In the 1920s, European, Soviet, and Japanese scientists scoured Republican China for minerals. Rare earths were confirmed in Inner Mongolia at what is now the mining district of Bayan Obon in 1933. The Chinese geologist responsible foretold that “these deposits will become an important treasury of China”. Any quick development was derailed by Japan’s invasion of China in 1937, in part driven by Japan’s desire to control these resources. Realising Communist China lacked the technological and financial capacity to extract the metals, Mao procured Stalin’s assistance, only for the project to collapse after the Soviet withdrawal in 1960. Fifteen years later, Deng Xiaoping drew up a 10-year national plan for rare earth production and research. Then, finally on schedule, serious mining began at Bayan Obon in the mid-Eighties with the expressed purpose of exporting to Japan and the United States.
Needing for its own economic and military future more rare earths than these mines can supply, China is now planning not just to develop overseas deposits but lunar resources. Last year, it became the first state to bring back materials from the far side of the moon. Any number of contingencies may mean Beijing’s technological success will not matter resource-wise for decades. Perhaps it never will. But compared to Washington’s inability to solve a problem it saw coming 15 years ago, the Chinese leadership’s ability to act in the face of long-term uncertainty has become an overwhelming structural advantage in this geopolitical age of resource competition.
