The rivalry over rare earth elements between the U.S. and China: Who will back down first?
China's recent decisions to tighten its control over rare earth exports have sparked concerns and dissatisfaction among Western non-military industries, with even contempt from the U.S. defense industry. This move could potentially backfire, as it may further escalate the ongoing trade tensions between the two global powers.
In a significant shift, China has imposed stricter regulations on the export of certain heavy metals, including terbium and dysprosium, leading to a complete halt in their exports throughout May and June. These heavy rare earths are essential for various high-tech applications, including electric vehicles, wind turbines, and military technology.
The U.S., in response, is accelerating its push for an independent rare earth pricing mechanism and is looking to develop domestic rare earth processing capacity. The coordination of these plans is primarily led by US government initiatives and companies like USA Rare Earth LLC, which are instrumental in advancing the country’s rare-earth production and processing capacity. However, no single coordinating entity has been explicitly named in the available search results.
The U.S. government is actively working to reduce its reliance on foreign sources, particularly China, by supporting domestic rare-earth mining and processing projects. The Trump administration has also implemented a new ban on the sale of "sensitive products" to China, including ethane, Electronic Design Automation software, and aerospace equipment and engines.
The U.S. might be able to maintain its superiority in some individual technological areas, but American dominance of the global economic order and its geopolitical primacy will likely be diminished. China's control over rare earths could become a significant advantage for the country, potentially maintaining its monopoly for decades.
China's aim is to limit or stop offering rare earths to the U.S. military industry, a move that could have serious implications for the U.S. defense industry. Since July, Chinese measures have made it nearly impossible for the U.S. military industry to bypass the Chinese market by buying from other countries.
If the ban lasts for an extended period, the U.S. defense industry could face major disruptions in the production and supply of critical weapons systems. The U.S. government has taken steps to mitigate this risk, setting a minimum purchase price for MP Materials, one of the largest rare earth producers in the U.S., at nearly double the current market price.
However, China has not eased restrictions on rare earth exports to the U.S. for the defense industry. In a rare concession, China has approved rare earth exports to U.S. automakers for a few months' supply. Despite this, the future of the rare earth industry remains uncertain, with questions about whether it can achieve scale without additional state intervention or other non-market measures.
As the standoff between the U.S. and China continues, the race to secure rare earth resources is becoming a critical factor in the geopolitical landscape. The outcome of this battle could determine the technological and economic dominance of the 21st century.
