As the U.S-China trade war escalates, one of Beijing’s moves has struck a nerve beyond the tariff tit-for-tat headlines. 

In early April, China imposed new export controls on seven key rare earth elements and magnets — critical inputs for everything from fighter jets and EVs to smartphones and MRI scanners.

What Are Rare Earths — and Why Do They Matter?

Rare earth elements (REEs) are a group of 17 metals essential for high-performance magnets, advanced electronics, and military applications. 

For instance, Neodymium is used to make the powerful magnets used in loudspeakers, computer hard drives, EV motors and jet engines that enable them to be smaller and more efficient.

Yttrium and Europium are used to manufacture television and computer screens because of the way they display colours.

Though not actually rare in quantity, they’re rarely found in concentrated, extractable forms — and even rarer still when it comes to environmentally responsible processing. 

Extracting and processing rare earths isn’t cheap — and it’s definitely not clean. The whole process is expensive and creates a lot of pollution. On top of that, rare earth materials often contain radioactive elements, which makes handling and disposal even more complicated. That’s a big reason why many countries, especially in the EU, have chosen to steer clear of producing them themselves.

China's domination in Rare Earths

According to the International Energy Agency, China currently accounts for 61% of global rare earth production and 92% of the refining capacity.

“Everything you can switch on or off likely runs on rare earths,” says Thomas Kruemmer, Director of Ginger International Trade and Investment.

Back in 1992, during a visit to Inner Mongolia, China’s former leader Deng Xiaoping made a bold and now-famous statement: “The Middle East has oil, and China has rare earths.” 

Starting in the late 20th century, China made rare earth development a national priority. By keeping labor costs low and environmental standards looser than in many other countries, they were able to scale quickly and outcompete rivals on price.

According to Gavin Harper, a critical materials expert at the University of Birmingham, this gave China a powerful edge — not just in mining, but across the entire rare earth value chain, from raw materials to refined products like high-performance magnets. The result? A near-global monopoly built over decades, one step at a time.

What Exactly Did China recently do?

On April 4, Beijing implemented a new requirement: companies now need export licenses to ship a select group of rare earths and magnets abroad. The targeted elements — primarily “heavy” and “medium” rare earths like dysprosium, terbium, and samarium — are particularly important for defense and electric mobility technologies.

Exporters have already declared force majeure on shipments, with traders and buyers in the EU and Japan scrambling. Some manufacturers are believed to have just 2–3 months’ worth of inventory.

“If we don’t see magnet deliveries in that time... we will see genuine problems in the automotive supply chain,” said Jan Giese, metals trader at Frankfurt-based Tradium.

This Hits the U.S. Hard

Heavy rare earths play a critical role in U.S. defense systems like F-35 jets, Tomahawk missiles, and Predator drones — and in high-tech production. A U.S. Geological Survey found that from 2020–2023, 70% of all rare earth imports to the U.S. came from China.

“The impact on the U.S. defense industry will be substantial,” said Thomas Kruemmer of The Rare Earth Observer (considered by many industry peers as a leading rare earth expert).

Even President Trump, known for promoting American manufacturing, has acknowledged the national security implications. In response, he’s ordered an investigation into America’s reliance on foreign critical minerals.

Believe it or not, the U.S. used to lead the world in rare earth magnet production — all the way up until the 1980s. But as China ramped up its scale and drastically undercut costs, American producers slowly bowed out of the market.

That’s a big reason why President Donald Trump has been so vocal about striking a minerals deal with Ukraine — part of a broader effort to break free from reliance on Chinese supply chains.

He’s also shown persistent interest in Greenland, which holds the world’s eighth-largest reserve of rare earth elements. 

More Than Just America

This isn’t only a problem for the US. Japan and Europe also rely heavily on Chinese REEs. A Japanese official put it bluntly:

“The issue is whether we can build the new, alternative supply chain in time for our stockpile to survive this.”

Alternative players like Australia’s Lynas are scaling up, but new capacity won’t come online until at least mid-2025 — and even then, only partially filling the gap.

Strategic Retaliation, Not Just Trade War Drama

Analysts suggest Beijing’s rare earth controls are a sharp response to President Trump’s sweeping 145% tariffs on Chinese goods. Unlike tariffs, which can be offset or negotiated, rare earth restrictions send a different message: China is willing to wield real economic power to protect its strategic interests.

“It’s a form of retaliation... that incentivizes companies to plead with their home governments to change tariff policy,” said a senior auto executive.

What Now?

Companies relying on high-performance magnets or rare earth materials should brace for supply chain turbulence in the short term. While “light” rare earths like neodymium have not yet been restricted, they remain a potential next step. The message is clear: the era of secure, cost-effective rare earth access from China is fading.