FACTBOX: Rare earth restrictions reignite US-China trade war

China announced Oct. 9 the expansion of its rare earth export control regime to include overseas-manufactured items containing Chinese-origin materials and technologies.

China's Ministry of Commerce now mandates that foreign organizations and individuals obtain Chinese export licenses prior to re-exporting items manufactured abroad that incorporate Chinese rare earth materials or related technology. This regulation applies even if the content of Chinese rare earth metals, alloys, or oxides constitutes 0.1% or more of the value of finished products such as rare earth sputtering targets and permanent magnets manufactured outside China, as indicated in the statement. Additionally, the ministry has imposed direct controls on rare earth-related processes, including mining, smelting and separation.

China initially tightened export restrictions on rare earths and permanent magnets on April 4 in response to US President Donald Trump's reciprocal tariffs on Chinese imported goods.

These restrictions compelled US and European automakers and their suppliers to reassess supply chain strategies and explore alternative sourcing options for critical materials needed in electric vehicle production. On June 11, Trump announced that the US and China had reached a "deal," suggesting that tensions between the two economic heavyweights had eased.

Declining export volumes

China's exports of rare earths saw a sharp decline in April after export restrictions were imposed in response to US tariffs. Shipments gradually recovered until June but fell again in the subsequent months. According to official Customs data, China exported 4,000 mt of rare earths in September, marking a 31% decrease from August and the lowest level since February.

The US responds

The announcement took the US government by surprise. President Trump had previously highlighted China's agreement to fully export rare earths and magnets following trade talks between the two nations in June. On Oct. 10, Trump declared that the US would respond by imposing a 100% tariff on Chinese products. This announcement suggests that the 100% tariff will be layered on top of existing tariffs that China currently faces, including 50% on steel, aluminum, and copper, as well as a 20% tariff imposed earlier this year. Additionally, China is subject to a 30% country-specific tariff after Trump signed an executive order in August, delaying higher rates for 90 days. While Trump has previously exempted metals from country-specific tariffs, he did not indicate any exemptions for the new 100% tariff on China.

Rare earth elements

Rare earth elements comprise a group of 17 metallic elements utilized in the manufacture of catalysts, magnets, and batteries, with applications spanning petroleum refining, electronics, automotive and wind energy. These elements are deemed indispensable for a wide range of modern military technologies, including lasers, radar, sonar, night vision systems, stealth technology, and missile guidance and control systems.

The largest market for rare earth metals currently resides in magnets, which predominantly rely on neodymium, praseodymium, samarium and dysprosium for the production of high-performance, lightweight Neodymium Iron Boron (NdFeB) and Samarium Cobalt (SmCo) permanent magnets. NdFeB magnets are particularly crucial for the rotor assembly in electric vehicle motors.

Chinese dominance

The US has depended on China for the vast majority of its rare earth supply. According to the US Department of Commerce, China controls nearly 60% of rare earth mining operations, over 85% of processing capacity and more than 90% of permanent magnet production. China also holds a similarly dominant position in the processing of other critical minerals, such as lithium, copper, cobalt and graphite.

On top of the latest restrictions on the export of rare earths and associated extraction and separation technologies, China enforces strict regulations on rare earth mining and processing through the publication of official output quotas.

The US and other countries are actively seeking alternative sources of rare earth supplies while investing in the development of their own domestic resources. These initiatives include supporting new mining projects in the US and other nations, such as Australia, Canada and Norway, as well as investing in new technologies aimed at recovering rare earths from discarded consumer electronics.

Countries striving to establish independent rare earth supply chains face challenges, including high capital expenditure and operating costs, along with the environmental impacts associated with the mining and processing of rare earths.

The Mountain Pass Rare Earth Mine in California is currently the only active rare earth mine and oxide production facility in the US. Owned and operated by MP Materials, the mine commenced commercial production in January 2022. In 2024, it achieved record production of over 45,000 metric tons of rare earth oxides and 1,300 mt of neodymium-praseodymium oxide, a rare earth alloy used in permanent magnets. In July, the US announced a $400-million deal to acquire a 15% equity stake in the miner, along with a $150-million loan to expand rare earth separation operations.

Western Europe was once a major hub for the processing of rare earth minerals, with France being the dominant processor. However, there is currently no production from native rare earth mineral ores in the region.