Rare Earth Minerals: The Critical Chokepoint Fuelling the US-China Trade War

The global supply chain for Rare Earth Elements (REEs) is a major point of economic and geopolitical vulnerability, now intensifying the trade war between the US and China. These 17 elements are not actually rare in the Earth’s crust, but finding them in economically viable, concentrated deposits is unusual, and the processing expertise is highly consolidated. The world’s dependency on a single source for these materials—vital for high-tech industries and national security—has made them a powerful geopolitical leverage tool.

China’s Dominance: The Supply Chain Chokepoint

Rare earth minerals are indispensable in modern technology. They form the basis of powerful permanent magnets used in Electric Vehicles (EVs), wind turbines, smartphones, advanced military equipment (like missiles and fighter jets), and numerous other high-tech consumer electronics.

Predominant Sources and Control

The problem isn’t the physical mining of the minerals, but the complex and often environmentally taxing separation and processing into usable elements and magnets.

Stage of Supply Chain China’s Estimated Global Control

China Mining ∼70%
China Separation & Processing ∼90%
China Magnet Manufacturing ∼93%

China has held indisputable dominance over the rare earth supply chain since the 1990s, making it the primary global source of refined REEs. The US, which was once the leading global producer, now imports a significant portion of its rare earth oxides, much of it directly or indirectly sourced from China. This dominance provides Beijing with a potent economic leverage tool.

Rare Earths as a Weapon in the Trade War

The US-China trade war, initially focused on tariffs and intellectual property, has now fundamentally shifted to control over critical raw materials.

Geopolitical Leverage

China has weaponised its dominance by implementing export controls on rare earths and related processing technology. These actions directly target the US industrial and defense base, which relies on these materials.

Export Restrictions: China has expanded restrictions to include magnets containing even trace amounts of Chinese-sourced REEs, or products manufactured using Chinese refining technology. These new controls effectively grant China veto power over key global supply chains, including advanced semiconductors and EVs.

National Security Focus: Beijing justifies the moves by citing the need to “protect its national security and interests” and prevent the “misuse of rare earth materials in military and other sensitive sectors.” These controls force foreign companies, including those in India’s auto industry, to provide end-use certifications to ensure the materials aren’t re-exported to the US for military applications.

US Response: The US has retaliated with threats of steep tariffs on Chinese goods and is aggressively pursuing domestic production and ‘friend-shoring’ initiatives with allies like Australia, Canada, and Vietnam to diversify its supply chain away from China. This intense back-and-forth confirms that rare earths are not just a trade issue but a core strategic and national security concern.

6 Business Risk Management Tips for Supply Chain Resilience

Businesses reliant on products that use rare earths (like EV manufacturers, electronics firms, and defense contractors) must take proactive steps to mitigate this escalating supply chain crisis.

1. Supply Diversification: Actively seek and activate alternative sources of REE ores, refining capacity, and finished components from politically stable regions (e.g., Australia, US domestic production, or other allied nations).
2. Multi-Tier Risk Assessment: Go beyond direct suppliers (Tier 1) to map and assess risks across all tiers of your supply chain (Tiers 2 and 3) to identify where reliance on China’s REE processing truly lies.
3. Strategic Stockpiling: Maintain a buffer stock of critical rare earth materials or high-value components to hedge against short-term disruptions, price spikes, and abrupt export license changes.
4. Invest in Recycling/Circular Economy: Prioritise R&D and investment in RE-free substitutes and urban mining (recycling of rare earths from end-of-life products like batteries and magnets) to create a sustainable, non-China-dependent source.
5. Conduct Scenario Planning: Run ‘what-if’ exercises based on geopolitical events (e.g., complete Chinese export ban, 100% US tariffs) to understand potential financial and operational implications and prepare rapid response plans.
6. Continuous Monitoring & Traceability: Implement a robust supply chain risk management system to continuously monitor geopolitical, regulatory, and financial risks for all key suppliers and raw material sources.

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Rare Earth Supply Crisis: How US-China Trade War Threatens Global Tech Supply Chains