China’s rare earth weapon changes contours of trade war battlefield

China has signalled for more than 15 years that it was looking to weaponise areas of the global supply chain, a strategy modelled on longstanding American export controls Beijing views as aimed at stalling its rise.

The scramble in recent weeks to secure export licences for rare earths, capped by Thursday’s telephone call between US and Chinese leaders Donald Trump and Xi Jinping, shows China has devised a better, more precisely targeted weapon for trade war.

Industry executives and analysts say while China is showing signs of approving more exports of the key elements, it will not dismantle its new system.

Modelled on the US’ own, Beijing’s export licence system gives it unprecedented insight into supplier chokepoints in areas ranging from motors for electric vehicles to flight-control systems for guided missiles. After Thursday’s call, Trump said both leaders had been "straightening out some of the points, having to do mostly with rare earth magnets and some other things”.

He did not say whether China committed to speeding up licences for exports of rare earth magnets, after Washington curbed exports of chip design software and jet engines to Beijing in response to its perceived slow-rolling on licences.

China holds a near-monopoly on rare earth magnets, a crucial component in EV motors. In April it added some of the most sophisticated types to an export control list in its trade war with the US, forcing all exporters to apply to Beijing for licences.

That put a once-obscure department of China’s commerce ministry, with a staff of about 60, in charge of a chokepoint for global manufacturing.

Several European auto suppliers shut down production lines this week after running out of supplies. While China’s April curbs coincided with a broader package of retaliation against Washington’s tariffs, the measures apply globally.

China mines about 70% of the world’s rare earths but has a virtual monopoly on refining and processing. Even if the pace of export approvals quickens as Trump suggested, the new system gives Beijing unprecedented glimpses of how companies in a supply chain deploy the rare earths it processes, European and US executives have warned.

Other governments are denied that insight because of the complexity of supply chain operations.

For example, hundreds of Japanese suppliers are believed to need China to approve export licences for rare earth magnets in coming weeks to avert production disruptions.

Fears that China could weaponise its global supply chain strength first emerged after its temporary ban of rare earth exports to Japan in 2010, following a territorial dispute.

As early as 1992, former Chinese leader Deng Xiaoping was quoted as saying, "The Middle East has oil, China has rare earths.”

Beijing’s landmark 2020 Export Control Law broadened curbs to cover any items affecting national security, from critical goods and materials to technology and data. China has since built its own sanctions power while pouring the equivalent of billions of dollars into developing workarounds in response to US policies.

In 2022, the US put sweeping curbs on sales of advanced semiconductor chips and tools to China over concerns the technology could advance Beijing’s military power.

But the move failed to halt China’s development of advanced chips and artificial intelligence, analysts have said.

Beijing punched back a year later by introducing export licences for gallium and germanium, and some graphite products. Exports to the US of the two critical minerals, along with germanium, were banned last December.

In February China restricted exports of five more metals key to the defence and clean energy industries.

Analysts face a hard task in tracking the pace of China’s approvals following the Trump-Xi call.

"It’s virtually impossible to know what percentage of requests for non-military end users get approved because the data is not public and companies don’t want to publicly confirm either way,” said Cory Combs, a critical minerals analyst with Trivium, a policy consultancy focused on China.