Rare Earth Minerals: Has China Touched Donald Trump's Painful Vein?

 

Rare Earth Minerals: Has China Touched Donald Trump's Painful Vein?

Last week, China’s Ministry of Commerce published a document titled “Announcement No. 62 for 2025.”

But it was not just a bureaucratic message, as it shook up China’s fragile tariff “truce” with the United States.

In the document, China detailed new restrictions on its rare earth exports. It is a move that will tighten China’s grip on global supplies of the key mineral and serve as a reminder to Donald Trump of how much China has in store if the trade war with the United States continues.

China has a near-monopoly on the processing of these rare earth minerals, which are used in almost everything from smartphones to fighter jets.

Under the new rules, foreign companies will now need Chinese government approval to export products, even if they contain very small amounts of rare earth minerals. Companies will also have to tell the Chinese government about the intended use of the minerals.

Jiao Yang, from the Singapore Management University, believes that while Beijing has short-term cards, Washington has few strategic options.

Professor Jiao says the US could offer to reduce tariffs, which would be attractive to Beijing as the trade war has hit its manufacturers hard.

China’s economy relies on the income it earns from the goods it manufactures and exports.

The latest official data shows that its exports to the US fell 27% from a year earlier.

Professor McDonagh said Washington could also threaten to hit China with more trade sanctions to hinder its efforts to develop its technology sector.

For example, the White House has already targeted China’s need for high-end semiconductors by blocking purchases of Nvidia’s latest chips.

But experts say the impact is likely to be limited.

“Beijing’s actions targeting the tech industry may slow China down, but they will not completely cripple it,” said Professor McDonagh.

He added that China has shown with its recent economic strategy that it is willing to suffer some pain to achieve its long-term goals.

“China can continue to do things as they are, even if it continues to cost it dearly under US export controls.”

“But if China cuts off the supply of these rare earths, it could really stop everyone’s industry. That would make a huge difference.”

Marina Zhang, a leading mineral researcher at the University of Technology Sydney, said Beijing has worked hard to establish its dominance in global rare earth processing capacity.

She added that the country has cultivated a vast talent pool in the sector, while its research and development network is years ahead of its competitors.

Although the United States and other countries are investing heavily to develop alternatives to China for rare earth supplies, they are still far from achieving this goal.

Australia, with its large reserves of rare earth minerals, is being seen as a potential challenger to China.

“But its production infrastructure is still underdeveloped, making processing relatively expensive,” says Marina Zhang. Even if the US and all its allies were to develop a national plan for the processing of rare earth minerals, I would say it would take at least five years to reach China.

Rare-earth minerals, while not a major part of China’s exports, are still very important to the world, Image source: Getty Images

, Image captionRare-earth minerals, while not a major part of China’s exports, are still very important to the world

New restrictions announced by Beijing in April have caused a global supply crunch.

China’s latest official data shows that exports of key minerals fell more than 30% in September from a year earlier.

But analysts say the drop in exports is unlikely to hurt China’s economy.

New York University professor Sophia Kalantzakos says rare earth minerals are a very small part of China’s $1.87 trillion annual economy.

By some estimates, the value of exports is less than 0.1 percent of China’s annual gross domestic product (GDP).

He said that while the economic value of rare earths to China may be small, their strategic value is “huge,” as they give Beijing leverage in negotiations with the United States.

Despite accusing China of “cheating,” Besant left the door open for negotiations.

“I believe China is ready for talks and I hope that this can be reduced,” he said.

Chinese Foreign Minister Wang Yi also highlighted the need for talks during a meeting with Stephen Schwarzman, chief executive of US private equity group Blackstone, on Thursday.

According to the Chinese Foreign Ministry website, Wang said that “the two sides should continue to maintain effective communication, properly resolve differences, and promote the stable, healthy and sustainable development of China-US relations.”

Professor Kalantzakos said that what China has done recently shows that it is “putting things in order” before these trade talks with the US.

Natasha Bhaskar says that in the form of blocking rare earth exports, Beijing has found its “best lever” to pressure Washington for a favorable deal.