The US and China are at the negotiating table again this week — and yet again, it’s because of the rare earths supply chain.
On April 4 China’s commerce ministry implemented export controls on seven rare earth elements in retaliation for US President Donald Trump’s tariffs on Chinese goods. A month later, US and Chinese officials met in Switzerland and agreed to a 90-day tariff truce, along with the removal of US firms from a Chinese trade blacklist that would enable them to access these minerals.
However, by early June it was evident that this agreement had fallen short. US carmakers, including Ford — which had to temporarily shut down a Chicago manufacturing plant — began experiencing shortages of rare earths. Trump accused China of backtracking on the deal, though in reality China had not officially reversed its position but was delaying issuing export licences.
In effect China used the slow pace of export licence approvals to pressure the US back to the negotiating table. On a Friday Beijing agreed to supply rare earths to three US carmakers, and by the following Monday officials from both countries reconvened in London. The new proposal: the US would relax its chip export restrictions to China in exchange for a steady supply of rare earths.
When I think back over the past 20 years, two major supply chain disruptions have significantly shaped 21st century industrial policy, in the way that the oil embargo did in the 1970s. The first was the semiconductor supply issues during the Covid-19 pandemic; the second, the recent rare earth export restrictions. The latter serves as a stark reminder of the strategic importance of minerals.
Just three months ago it would have been hard to imagine Trump making swift compromises with China — reversing tariffs and granting access to the essential chips needed for China’s defence industry. However, the alternative — the collapse of the US manufacturing industry for automotives, defence, chips and other industries — was unpalatable.
This past week I’ve spoken to a range of media outlets — from the Wall Street Journal to CNN — about whether the rare earths crisis is here to stay. The answer is no. This crisis will eventually subside as we develop new capabilities. The US is a relatively small consumer of rare earths; in 2024, it used only 6,600 tonnes, representing just 1.7% of global production.
The US is rapidly supporting the development of rare earths separation and permanent manufacturing capabilities outside China. Remember that China now processes 100% of the world’s heavy rare earths. This is why the US is backed up against a wall.
The US government has spent over $400m to bring rare earth separation facilities online in California and Texas, a US firm is building a permanent magnet manufacturing facility in Texas, the US and Saudi Arabia have signed an agreement to build a mine-to-magnet supply chain for rare earths, and there are several rare earth separation facilities that will come online in 2025/26 in Australia.
African nations are poised to be key players in the effort to diversify rare earth supply chains. In 2024, four of the top 10 countries attracting the most rare earth exploration activity were located in Africa. Notably, SA ranked third in terms of exploration spending — surpassed only by Australia and Brazil — and even outpaced the US. Malawi, Uganda and Namibia were also in the top 10.
As the saying goes, “this too shall pass”. While the crisis is acute — and US manufacturing firms are feeling the pain — China’s leverage remains time-bound.
• Dr Baskaran, a development economist, is founding director of the Project on Critical Minerals Security at the Centre for Strategic & International Studies in Washington, DC.
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