Amid a 90-day ceasefire in the trade war between the United States and China, forecasts suggest that China's export control over rare earth metals will be the biggest issue in future negotiations. Rare earth metals, which China controls in production and processing, are essential resources for advanced industries such as defense, energy, and electric vehicles. The United States needs to secure the most stable rare earth supply lines possible, while China does not want to completely exclude the United States, a major player in rare earths, but needs to leverage this to gain an advantage in negotiations. A fierce tug-of-war between the two countries is expected.
On the 13th (local time), the U.S. economic media outlet Fortune reported that "one of the key issues that the U.S. and China have to resolve going forward is China's export control of rare earths," adding, "Considering China's enormous role in the global rare earth market and the United States' commitment to maintaining a stable supply of rare earths, this issue is likely to be one of the most sensitive parts of this trade agreement."
The day before, the United States and China declared through a joint statement that they would each reduce tariffs imposed on one another by 115 percentage points. However, they have prepared a 'trigger mechanism' that could potentially raise mutual tariffs by 24 percentage points if negotiations fail after 90 days. In accordance with this agreement, China announced that it would temporarily suspend or lift the non-tariff measures aimed at the United States that were implemented since the 2nd of the previous month, with the key measure being the export control of crucial rare earths announced on the 4th of last month. Crucial rare earths are highly limited in supply and are strategic materials essential for advanced industries. Dysprosium, a core material for electric vehicle motors, is an example.
Although China did not specifically disclose the non-tariff measures that are subject to suspension or lifting, it seems that the export control of rare earths is included in that list. Therefore, there are expectations that U.S.-bound rare earth exports will gradually ease. The day before, Reuters reported, citing sources, that China’s Ministry of Commerce is expected to accelerate the export approval process, which typically takes 45 days, and exporters with clients in the United States will soon be able to receive permits.
However, China made it clear that it has no intention of completely lifting export restrictions on rare earths. Shortly after the joint statement between the U.S. and China, China’s Ministry of Commerce held a meeting for a "special operation to control the smuggling and export of strategic minerals," naming gallium, germanium, antimony, tungsten, and crucial rare earths as targets for enforcement. Dexter Roberts, a senior researcher at the Atlantic Council, a U.S. think tank, said to Fortune, "Controlling this field is one of China’s most significant influences on the U.S. and the world," and added, "Since the export control of rare earths has already been used to punish the United States, China will not take this out of its economic arsenal."
The United States and China seem poised to continue their fierce tug-of-war over rare earths. The United States is in dire need of China's rare earths. According to the International Energy Agency (IEA), China produces about 61% of the world's rare earth minerals and processes 92%. Given the high dependency on Chinese rare earths, industries such as defense, energy, and automotive are bound to suffer significant impacts. This is why The Economist from the UK stated, "China's rare earth control is a weapon that could harm the United States." U.S. President Donald Trump has already begun applying pressure, stating the day before, "China will suspend and eliminate all non-tariff barriers," and that "they have agreed to fully open the Chinese market."
From China's perspective, it cannot merely tighten its grip on rare earths. Considering the scale of U.S. industry, China can only be a major player in the rare earth market, and it risks losing credibility among other countries. Jörg Bottke, a trade specialist at the U.S. consulting firm DGA-Albright Stonebridge Group, noted to Fortune, "China wants to threaten but not exclude the United States in the rare earth market," and added, "While conflicts are escalating between the U.S. and China, China is also wary of appearing to politicize its rare earth business, as the world could choose not to do business with China."