Final month, the Trump administration launched a commerce struggle of unprecedented magnitude towards China by asserting a staggering 145% tariff on Chinese language imports. China responded by enjoying hardball. It imposed a 125% reciprocal tariff on U.S. items. Whereas earlier escalations had seen China urging for dialogue and cooperation, this time Beijing’s response was defiant. The Chinese language Ministry of Commerce declared it was “ready to struggle until the tip.”
Final weekend, the optics modified dramatically. The U.S. and China agreed to a 90-day pause on their commerce struggle wherein the punitive, reciprocal tariffs have been rolled again to 30% by the U.S. and 10% by China. This end result didn’t shock us. Because it seems, Beijing has an ace up its sleeve. The ace is China’s international dominance in important supplies.
China’s strategic ace wasn’t constructed in a single day. It started with a heavy funding in human capital, which is underscored by China’s emergence as a worldwide chief in science, know-how, engineering, and arithmetic (STEM). Simply twenty years in the past, China led in solely three of 64 important know-how fields, whereas america dominated in 60, in response to the Australian Strategic Coverage Institute’s (ASPI) Important Know-how Tracker. Since then, the tables have turned. As we speak, China has taken the lead in 57 of those fields, with the U.S. now main in simply seven.
China’s newfound STEM supremacy is fueled not solely by state-driven insurance policies but in addition by China’s financial elites, a younger and dynamic group typically rural-born and globally educated. In line with the World Elite Database, 34% of China’s financial elites studied engineering, gaining experience in fields like materials science, robotics, and aerospace.
Whereas China has solely lately turn into dominant within the STEM fields, it has lengthy dominated in what one in every of us (Hanke) has dubbed the Three Ms: Mining and Mineral Engineering, Metallurgical Engineering, and Supplies Science and Engineering. China’s dominance within the Three Ms is essential as a result of it underpins the extraction, processing, and utility of important minerals that energy trendy know-how and nationwide safety.
China’s dedication to STEM and, extra particularly, to the Three Ms permits it to train near-monopoly energy over uncommon earth parts and significant supplies. As we speak, China controls roughly 70% of uncommon earth mining and greater than 90% of the processing capability worldwide. This issues as a result of uncommon earth parts (REEs), a gaggle of 17 minerals, are important to many applied sciences, from client electronics to army know-how. Neodymium magnets drive offshore wind generators and electrical automobiles, whereas europium and terbium illuminate LED shows and smartphone screens.
In terms of protection, the stakes are even larger. Certainly, an F-35 fighter jet requires over 900 kilos of uncommon earths, an Arleigh Burke DDG-51 destroyer wants 5,200 kilos, and a Virginia-class submarine consumes greater than 9,200 kilos. It isn’t stunning that 23 retired four-star U.S. generals and admirals have lobbied the U.S. Home Methods and Means Committee to guard tax breaks for important mineral initiatives.
If the U.S. and the West’s vulnerability to China’s dominance of uncommon earths isn’t dangerous sufficient, the U.S. Geological Survey stated in March that of the 44 important minerals, corresponding to antimony, chromium, graphite, lithium, titanium, and vanadium, China led manufacturing 30.
China’s rise has been greater than 70 years within the making. It traces again to 1950, when Chinese language geologists found the Bayan Obo deposit in Interior Mongolia, one of many world’s largest mild uncommon earth reserves. In 1972, Peking College professor Xu Guangxian, a Columbia College skilled chemist, made a serious breakthrough when he developed the “cascade extraction theory.” This was dubbed the “China shock” by Western observers. It allowed China to extract uncommon earths at 1 / 4 the price of the West.
In 1975, China institutionalized its ambitions by establishing the Nationwide Uncommon Earth Improvement and Software Main Group, laying the groundwork for long-term strategic planning. By 1991, 4 uncommon earth parts have been designated as protected minerals, proscribing overseas possession and investments. In 2001, China’s Tenth 5-12 months Plan solidified this strategy by itemizing uncommon earths as a nationwide growth objective. This strategic focus was additional sharpened on Oct. 1, 2024, when the State Council applied sweeping “Rare Earth Management Regulations.” These new guidelines consolidated authorities management over the exploration, mining, processing, and export of uncommon earth minerals. This delivered yet one more sign that China views uncommon earths not simply as financial belongings, however as geopolitical instruments.
China’s important materials benefit is a one-two punch that extends far past its borders. For one factor, practically anybody who desires to course of uncommon earth supplies should ship them to China. As well as, over the previous twenty years, Beijing has strategically invested in important materials initiatives worldwide. For instance, in Brazil, Chinese language corporations have secured offtake agreements for practically the entire Serra Verde challenge’s output, which incorporates neodymium, praseodymium, terbium, and dysprosium. In Greenland, China’s partially state-owned Shenghe Assets holds a minority stake within the Kvanefjeld mine, which accommodates 1.5 million metric tons of uncommon earth oxides. In Africa, Chinese language firms management 70% of mines within the Democratic Republic of Congo and have offtake agreements for the Ngualla uncommon earths challenge in Tanzania. Even within the U.S., Shenghe Assets owns a 7.7% stake in MP Supplies’ Mountain Move mine, a mine which has sarcastically been marketed because the U.S.’s greatest hope for overcoming China’s stranglehold on uncommon earths.
China is nicely conscious of its strategic ace within the Trump administration’s commerce struggle. For instance, in 1992, Chinese language chief Deng Xiaoping famously declared, “The Middle East has oil; China has rare earth.” Furthermore, China is aware of wield its dominance. In 2010, amid a dispute over the Diaoyu/Senkaku Islands, China abruptly lower off uncommon earth exports to Japan for 2 months. The affect was profound: Japan, which relied on China for over 80% of its uncommon earth imports, confronted extreme disruptions. The value of cerium oxide, a key uncommon earth compound, surged by 660%. Japan’s electronics sector, together with firms like Sony and Panasonic, reported as much as a 30% enhance in part prices as a result of embargo. Then, in 2023, Beijing restricted exports of gallium and germanium—important for semiconductors and missile programs—in response to U.S. restrictions on Chinese language entry to superior chip know-how. In 2024, China escalated additional, imposing export controls on seven extra uncommon earth parts. This tightened the screws on international provide chains. Most lately, in December 2024, China applied a whole ban on antimony exports, driving up its value by over 134%.
Simply final month, in response to President Trump, China used its uncommon earths lever to go after U.S. automakers. China did this by proscribing exports of uncommon earths corresponding to dysprosium, which is utilized in electrical car magnets, and by requiring U.S. firms to use for export licenses in a months-long course of. This motion sparked panic amongst automakers. Certainly, as Elon Musk famous final month, China’s export halt on magnets containing heavy uncommon earths disrupted Tesla’s plans to fabricate Optimus robots, highlighting the strategic significance of those magnets in cutting-edge know-how. These strikes exhibit China’s willingness to weaponize its close to monopoly to counter U.S. commerce aggression, with the potential to disrupt American industries from electrical automobiles to protection manufacturing.
China’s dominance in important supplies has rendered them now not simply commodities. They’re a strategic lever. It’s clear that President Trump and america are enjoying with hearth.
The opinions expressed in Fortune.com commentary items are solely the views of their authors and don’t essentially replicate the opinions and beliefs of Fortune.
Learn extra:
- China has stopped exporting uncommon earths to everybody, not simply the U.S., reducing off important supplies for tech, autos, aerospace, and protection
- Important minerals processing would be the equal of Nineteenth-century oil refineries—at a Rockefeller second
- How China’s important minerals might turn into a tipping level in its commerce battle with the U.S.
- Mining hasn’t advanced in a long time. The U.S. should reinvent it as China tightens its grip on important minerals
This story was initially featured on Fortune.com
