Perspective: The US Can Ease China’s Grip on Rare Earths. But Force Won’t Make It Happen

If China gains access to advanced chips, AI technology, and the dollar-based financial system, it will have an incentive to keep rare earths flowing.

China’s weaponization of rare earths has become a major flashpoint in U.S.-China trade negotiations. These critical materials—particularly high-performance magnets—are essential components in electric vehicles, wind turbines, industrial robots, and advanced defense systems.

In response to China’s stringent export controls on rare earths, the U.S. has quietly reduced tariffs, eased restrictions on AI chip exports, and even relaxed visa constraints for Chinese students.

At the same time, the U.S. is scrambling to find alternative supplies. In July of this year, the U.S. Department of Defense announced a landmark multibillion-dollar investment plan to boost MP Materials, the company behind America’s flagship rare earth project. But what if, despite substantial subsidies and years of effort, the U.S. still cannot break free from its reliance on Chinese rare earths?

Japan offers a cautionary tale. In response, the Japanese government implemented a series of strategic measures: investing in Australian rare earth producer Lynas Rare Earths; enhancing domestic recycling and R&D in alternative technologies; establishing its own commercial partnerships with Chinese magnet manufacturers; and building strategic reserves to buffer against future supply shocks. Yet 15 years later, more than 70% of Japan’s rare earth imports still come from China.

China’s dominance in rare earths was not built overnight and will not be easily eroded. China’s advantage lies not in hoarding raw materials, but in its industrial capacity for large-scale refining, processing, and manufacturing. Today, China controls 85% to 90% of global rare earth smelting capacity and produces approximately 90% of the world’s high-performance rare earth magnets. It is the only country with a fully vertically integrated rare earth supply chain—from mining to chemical separation to magnet manufacturing.

China’s manufacturing prowess has not only given it industrial leadership but also a technological moat. From 1950 to 2018, China filed over 25,000 rare earth-related patents—more than double the number filed by the United States. Decades of accumulated expertise in the complex chemistry and metallurgy of rare earth processing have created a knowledge base that Western firms cannot easily replicate. Moreover, in December 2023, the Chinese government moved to consolidate its leading position by imposing a comprehensive export ban on technologies underlying rare earth mining, separation, and magnet production.

China’s lax environmental regulations have also given Chinese companies a significant advantage over Western competitors. In 2002, California’s Mountain Pass Rare Earth Mine was forced to halt refining operations due to a toxic waste spill. In contrast, China’s more permissive regulatory environment has allowed rapid expansion of rare earth production with fewer delays and far lower costs.

Critically, choke points in rare earth supply are not static; they evolve with technology. China understands this and is patiently waiting as the West’s dependence on rare earth magnets grows exponentially amid the global green energy transition, which is driving massive demand for electric vehicles and wind turbines.

Even if the West succeeds in building a parallel supply chain for today’s rare earth needs, future bottlenecks may emerge elsewhere. For instance, quantum computing increasingly relies on rare isotopes such as ytterbium-171, as well as elements like erbium and yttrium. These emerging applications could become the next pressure point, forcing the U.S. and its allies into another race to catch up.

Thus, the U.S. must confront an uncomfortable truth: China’s dominance in rare earths is likely to persist for the foreseeable future. Defensive strategies like supply chain diversification may address some vulnerabilities, but true resilience requires an offensive strategy that enhances U.S. leverage.

The U.S. still holds many valuable cards. As long as China controls technologies or infrastructure that it cannot do without—whether advanced chips, cutting-edge AI models, or access to the dollar-based financial system—China will have a strong incentive to keep rare earths flowing.

Yet for years, the U.S. has been moving in the opposite direction: gradually decoupling from China and restricting the flow of key technologies.

Since the first Trump administration, U.S. strategy has involved blacklisting leading Chinese tech companies and tightening export controls on cutting-edge chips. While these measures initially hampered firms like Huawei and ZTE (HK:763) and slowed the country’s AI development, they have proven difficult to enforce. Riddled with loopholes, they have created opportunities for regulatory arbitrage. As outgoing U.S. Commerce Secretary Gina Raimondo acknowledged in December 2024, “Trying to block China is futile.”

At the same time, U.S. export controls have spurred China’s efforts to develop domestic alternatives, effectively accelerating the rise of national champions like Huawei. Rather than strengthening U.S. influence over China, these policies have gradually eroded it.

Recent policy shifts suggest this realization is beginning to take hold. The Trump administration’s decision to ease restrictions on sales of Nvidia’s H20 chips to China marks a move away from blanket bans toward more targeted engagement. Counterintuitively, such engagement may be a smarter way to de-risk. The more China depends on U.S. technology, the more entangled their supply chains become, and the harder it becomes for China to weaponize its strategic assets—including rare earths.

Angela Huyue Zhang, Professor of Law at the University of Southern California, is the author of High Wire: How China Regulates Big Tech and Governs Its Economy (Oxford University Press, 2024) and Chinese Antitrust Exceptionalism: How the Rise of China Challenges Global Regulation (Oxford University Press, 2021).

This commentary — “Rare Earths Are China’s Trump Card” — is published with the permission of Project Syndicate.