By Guangzhou (Albert) Hu

It is difficult to think of another industry in which a single country dominates as much as China does in rare earths. China accounts for about 70%of global rare earth mining and more than 90% of global refining capacity. Even these remarkable figures understate China’s near monopoly over certain products; the term “rare earths” is used in the plural because it refers to 17 chemical elements on the periodic table, and when it comes to the group of nine “heavy” rare earths, China produces around 99%of global output.

What further distinguishes China’s rare earth industry is that its dominance spans the entire supply chain. “Rare earth” is something of a misnomer: these elements are neither especially rare nor geographically concentrated. Their limited supply stems from the technological challenges involved in separating them from other minerals and refining them – areas in which China excels. This advantage is the product of sustained technological investment and innovation. Between 2011 and 2015, for example, a US consulting firm reports that China filed more than 10,000 patents related to rare earths – over twice as many as the rest of the world combined. China’s lead has only widened in the years since.

Rare earths made international headlines in April 2025 when China placed seven medium and heavy rare earths on its export control list, following US President Donald Trump’s escalation of the tariff war. Within a month, US imports of Chinese rare earths fell by 96%, and prices for some products more than doubled. China’s partial relaxation of these controls was reportedly pivotal in the US-China trade talks held in Geneva in May, which produced a truce in the tariff conflict. Following the agreement, China’s rare earth exports to the US rebounded by 660%.

Why are rare earth elements such a major global concern? In 2024, China exported $5.8 billion worth of rare earths to the US, a small fraction of the $438.7 billion in total US imports from China. Yet the modest trade volume masks their strategic importance. Rare earths are essential inputs for a wide range of products, from consumer electronics and automobiles to advanced military systems. Ford Motor, for instance, was forced to halt production at its Chicago plant after Chinese export controls triggered a rare earth shortage. Each F-35 fighter jet contains more than 400 kilograms of rare earths. Overall, the US relies on China for about 70%of its rare earth imports.

China’s export controls on rare earths invite comparison with US restrictions on semiconductor exports to China. Both measures are driven by geopolitical rivalry and have generated fundamental shifts in their respective global supply chains. But US semiconductor export controls illustrate that sanctions are a double-edged sword. While restricting China’s access to advanced chips has slowed the country’s technological progress in certain areas, it has also spurred China to accelerate a drive toward self-sufficiency. Despite significant challenges, China has made notable progress in closing gaps across its semiconductor supply chain.

China’s dominance in rare earths is increasingly being challenged across the production chain. Australia, Vietnam, and the US have invested heavily in rare earth mining, leveraging their substantial mineral deposits. In May 2025, Australian firm Lynas began refining rare earths at its new facility in Kuantan, Malaysia, describing it as “the world’s only commercial producer of separated heavy rare earth products outside China.” The US government has also contracted Lynas to build a new refinery in Texas.  

Despite these initiatives by Western countries, China continues to enjoy a significant cost advantage, supported by large-scale production and technological leadership. Yet, in today’s increasingly polarised geopolitical environment, rare earth production is no longer purely a commercial activity; its trajectory is now shaped primarily by national security concerns.

In July 2025, the US government reached an agreement with MP Materials, the only operational rare earths mine in the US, to become its largest shareholder. As part of the deal, Washington also committed to purchasing the company’s output over the next decade at prices well above market levels. A parallel can again be drawn with semiconductors: in the early 1960s, soon after the invention of the integrated circuit, US military procurement absorbed the entire output of the fledgling domestic semiconductor industry, as high prices discouraged civilian use.

China’s export controls on rare earths must be understood in the broader context of President Trump’s tariff war against much of the world. His discriminatory, anti-free trade measures and impulsive governance style have unsettled the global trading system, leaving countries to fend for themselves. Large economies have the capacity to push back, while smaller ones are often left with little choice but to yield. 

Despite its unrivaled strength in rare earths, China has used this leverage with caution in responding to President Trump’s trade tactics. The US-China trade talks held in London in June were reportedly driven by US concerns that China had been slow to lift export controls on rare earths which it had previously agreed to. Following the talks, President Trump promptly declared that a rare earths deal with China was “done.”

It is in China’s interest not to overplay its rare earths card. Sanctions on resources so critical to national security inevitably prompt determined efforts to develop alternatives – and the harsher the restrictions, the sooner such alternatives will emerge. An even more important consideration is China’s position in shaping a new global trading system.

America’s retreat from free trade is likely to persist beyond the Trump presidency. Nonetheless, globalisation continues to deliver significant benefits, particularly for the Global South. China has deepened its trade ties with this region, encompassing Southeast Asia, Africa, Latin America, and the Middle East. Exports to these regions doubled between 2015 and 2024, reaching $1.6 trillion – over 50% higher than its exports to the US and Western Europe combined. Imports from the Global South to China have also more than doubled over the past decade. These trends underscore the region’s growing weight in global trade and its strategic importance to China’s economic diplomacy.

China is well positioned to champion globalisation even as the rules of global trade are renegotiated to address Western countries’ grievances. The rare earth industry can play a constructive role in this process. Rather than allowing diversification of global supply to be shaped by the West, China can take the initiative by investing in overseas production and leveraging its technological and operational advantages. This proactive approach constitutes China’s true rare earth trump card.

Guangzhou (Albert) Hu is Professor of Economics at CEIBS. His research interests center on the economics of technological change and the Chinese economy.