Rare Earth Statecraft Phase Two

After several months of relative calm, US-Chinese relations took a negative turn when Beijing flexed its geopolitical muscle and dramatically expanded the list of rare earth elements (REEs) requiring an export license. US President Donald Trump reacted strongly, threatening to impose new 100% tariffs on all Chinese goods as of November 1 and cancel a planned meeting with his Chinese counterpart, Xi Jinping, in South Korea at the end of October.

China’s action, alongside new export restrictions on lithium batteries used in electric cars and superhard materials used to make mining drills, reminded global markets that it controls 90% of global rare earth magnet production and 85% of global REE refining and processing capacity. Chinese companies must now obtain licenses to export rare-earth mining and separation equipment, giving Beijing more influence over nations seeking to be alternatives to Chinese sources.

But the most significant Chinese measure is a new global licensing requirement set to take effect December 1. Under that rule, companies worldwide must apply for Beijing’s approval to export rare-earth magnets or semiconductor materials that contain even 0.1% of controlled metals originating in China.

Beijing’s strategic motivations for expanding rare earth export controls stem from a desire to counterbalance Western restrictions on semiconductor exports, assert dominance in critical supply chains, and signal its leverage in global trade negotiations. By brandishing its dominance in RREs, Beijing seeks to get the Trump administration to rescind the trade actions it has taken against China since senior officials from both countries met in Madrid in mid-September. It also wants to roll back the export restrictions on semiconductors and get a commitment from Washington to refrain from taking additional restrictive actions, such as imposing tariffs, sanctions, and export controls on advanced technology, or adding Chinese companies to entity lists.

Other countries are being caught in the crossfire. China’s initial REE export controls in 2023 and 2024 were targeted at US efforts to curtail Chinese access to advanced chips. But in April and August of this year, Beijing expanded its export restrictions on several REEs and magnets to require export licenses to any country. European and Asian production lines suffered disruptions without crucial materials needed for electric vehicles and other advanced manufacturing. European Commission President Ursula von der Leyen tried to limit the damage at the EU–China summit on July 24 by reaching an agreement with Xi to fast-track licenses for critical raw materials. According to the EU Chamber of Commerce in China, however, the promised relief did not materialize, with fewer than a quarter of the 140 license applications approved.

Europe’s automotive, semiconductor, and defense sectors have consequently suffered costly re-sequencing and production pauses due to a lack of critical inputs. Japan and South Korea have similarly faced delays in shipments, and production at several manufacturing plants across Asia has been halted.

In the meantime, Chinese exports to the EU grew by over 14% in September, the strongest showing in more than three years. This is the result of China’s successfully shifting exports from the United States to other markets, including Europe, a sign that Trump’s tariff strategy is less effective against Beijing than against others.

Another Way

A better course of action would be for the United States, the EU, and other allies to work together, breaking Beijing’s monopoly and presenting a unified front against current and future economic coercion. Joint action is in Washington’s interest since REEs are a geopolitical tool that Beijing is using as part of its economic statecraft. This should be a wake-up call for Western democracies to join forces to increase REE mining, reprocessing, and refining, and to commit to paying higher prices to protect national security.

Scaling up production and creating accompanying demand will reduce China’s dominance and derisk Western supply chains. Chinese REE sellers, after all, drop prices to reclaim market share and drive out competitors, and mines shut due to predatory pricing, with processed minerals being sold at prices below the cost of extraction. But these actions lower costs for companies sourcing REEs from China, which will pressure countries in the West as customers there face higher prices.

Some in the United States support promoting only domestic mining and processing capabilities, and favor limiting imports even from allies. Others argue that this will hurt other US domestic industries as the country’s capabilities are inadequate to meet domestic needs. The Trump administration’s recent equity investments in two Canadian companies, Trilogy Metals and Lithium Americas, and the US-Ukraine Minerals Resources Agreement, suggests that Washington may be taking a more allied-centric approach to critical mineral partnerships.

But what can allies do now as they bring more capacity online?

Diplomacy and continued dialogue remain the preferred option for many world leaders as their countries lack alternative supplies of REEs in the short term. In addition, upcoming interactions between US and Chinese leaders at the Asia-Pacific Economic Cooperation summit in South Korea may de-escalate the situation. But if a new truce is not reached, tariffs will be Trump’s go-to option to punch back at China’s coercive behavior. Coupled with export controls and other economic security tools, the United States will reuse its playbook from earlier in the year when it ratcheted tariffs up to 145% against China.

But an effective approach requires coordinated allied action including joint tariffs on Chinese rare earths, harmonized export control regimes, shared investment screening protocols, and unified procurement standards for critical materials. Pending US actions under Section 232 of the Trade Act of 1962 on critical minerals offer an opportunity to deepen cooperation between Washington and its partners by creating a tariff wall to protect nascent REE and magnet producers. Such levies applied at an agreed level on countries outside the shared tariff wall would offset predatory prices and create a large common market for materials produced by allies.

Other policy tools such as price floors and strategic procurement can also be effective if backed by enforceable multilateral agreements. A joint rare earth stockpile and minimum price guarantees, for example, could stabilize markets and incentivize production. Government procurement rules could also be a powerful mechanism for boosting investment by guaranteeing demand. Creating preferred suppliers in defense contracts would be one option to accomplish this. Additional nontariff measures, such as jointly eliminating certain Chinese technology from critical infrastructure projects, could be another focus of joint efforts.

Diminished Trust

Even if Washington is willing to prioritize international coordination in a response to Chinese economic coercion, US allies are finding the country a less reliable partner after months of chaotic policy and uncertainty. The Trump administration’s unpredictability and the president’s penchant for transactional deals may have destabilized negotiating partners and yielded wins for the United States, but these victories have come at a cost. American allies are now wary of partnerships with Washington.

Europe, however, could also move unilaterally to protect its supply chains. Recent EU statements suggest an increased willingness to embrace the Anti-Coercion Instrument, a powerful trade tool that would allow rapid action against China, including tariffs and restricting government procurement. European leaders are also calling for stronger economic security measures and more joint industrial policies to reduce dependence on China. Brussels, it appears, is preparing a more aggressive approach toward China to defend Europe’s economy, regardless of US action.

The evolving Sino-American standoff on rare earths, however, underscores the urgent need for a unified allied response. As Beijing leverages its dominance in critical minerals to exert geopolitical pressure, piecemeal national strategies have proved important but insufficient to safeguard supply chains and counter China. Only through robust cooperation—joint tariffs, harmonized controls, shared investment screening, and coordinated procurement—can partners effectively counter China’s coercive tactics and build resilient, diversified sources of REEs. The path forward demands strategic alignment and sustained commitment among allies. By embracing collective and determined action, democratic nations can secure their futures and ensure that economic statecraft serves their interests of stability, innovation, and shared prosperity.