China’s Lock on Rare Earths Dictated Path Toward Trade Truce
The Wall Street Journal
by Jon Emont, Gavin Bade
6-11-25
https://www.wsj.com/world/asia/trump-china-rare-earths-0cbf3f3c
China’s chokehold on supplies of minerals essential to high-tech goods from electric vehicles to jet fighters has become a formidable advantage in trade negotiations with the U.S.
President Trump said Wednesday that the U.S. and China had agreed on terms for a truce on trade. The framework for the deal, which officials from the U.S. and China negotiated over two days in London this week, hinged on access to China’s exports of rare-earth magnets, coin-size components that are indispensable for powering car motors, industrial robots and missile-guidance systems.
Trump and Chinese leader Xi Jinping need to approve the agreement, which would lift some U.S. export restrictions in exchange for speeding the flow of rare earths. Commerce Secretary Howard Lutnick told The Wall Street Journal that he expects Trump to approve the agreement as soon as Wednesday or Thursday.
China makes around 90% of the world’s most powerful rare-earth magnets.
The deal appears to allow China to maintain an export-control system for rare earths established in April after Trump heaped extra duties of 34% on Chinese products. That would allow Beijing to clamp down on supplies again in the future. And licenses for U.S. manufacturers to import rare earths from China would have a six-month limit, people familiar with the deal said.
“China’s going to want to maintain leverage,” said Gracelin Baskaran, director of the critical minerals security program at the Center for Strategic and International Studies in Washington. China’s dominance “puts American companies at direct risk given that any sort of agreements that have been made can be reneged on,” she said.
China’s decision this year to cut back on exports of the magnets for just a couple of months sent shock waves through the global auto, electronics and defense industries. That helped drive the U.S. and China back to the bargaining table this week. China wanted the U.S. to lift export restrictions on technology including aviation parts in exchange for U.S. access to the rare-earths components.
China said it established export controls to regulate the supply of “dual-use” materials that can be used by militaries. After they took effect, Chinese magnet exporters requested details from foreign customers about the precise intended use. Magnets that didn’t contain the restricted rare-earth elements sometimes had to verify that through third-party testing, further gummed up exports.
Regulators often came back with more questions, sometimes requesting pictures of final products, which companies were loath to disclose because of intellectual-property concerns.
As delays mounted, global manufacturers grew more concerned.
In April, Elon Musk said China’s magnet restrictions could interfere with production of Tesla’s Optimus humanoid robots. Ford said it had stopped production of its Explorer SUV at its Chicago plant for a week in May.
New export licenses were issued in limited quantities to some Chinese magnet companies for certain non-U. S. clients including Volkswagen, and even some U.S. companies, people familiar with the matter said, but many companies around the world struggled to get enough magnets.
Two weeks ago, Bajaj Auto, an Indian auto rickshaw maker, said rare-earth export licenses now required, among other things, certification by the Chinese Embassy in India.
A trade truce between the U.S. and China in Geneva in mid-May was expected to ease the flow of magnets. But rare-earth exports remained constrained and the U.S. accused Beijing of slow-walking approvals. China blamed the Trump administration for breaking the Geneva agreement.
Earlier this month, Beijing said it would ease rare-earth exports to Europe, but made no such move for the U.S.
Automakers and other companies will seek to use any loosening of export restrictions to stock up on rare-earth magnets. Relief could be short-lived.
Mineral experts deem it unlikely that China will issue enough permits to allow big auto companies to stockpile magnets in large quantities. And even if Beijing did free up the flow, companies’ needs for specific magnets shift over time: When a carmaker changes the design of a motor, it often needs different magnets.
Defense companies are expected to face the most serious challenges. U.S. defense companies have moved away from China-sourced magnets, but few military-grade magnets are completely free of Chinese rare earths.
“China is very aware of its own capacity and is increasingly showing it is willing to use its own tools if necessary,” said Deborah Elms, head of trade policy at the Singapore-based Hinrich Foundation.
China’s dominance of rare earths was years in the making. By the 1990s China had developed top-quality rare-earth mines and a growing manufacturing sector hungry for rare-earth magnets. With state backing and easy access to raw materials, Chinese magnet makers undercut foreign competition. By 2010, the U.S. rare-earth magnet industry had all but disappeared. That gave Beijing a powerful weapon. One reason it has held off from restricting rare-earth exports in recent years is because that could catalyze efforts by companies around the world to develop rare-earth supply chains independent of China.
Australia’s Lynas Rare Earths recently opened a plant in Malaysia to process strategically crucial “heavy” rare earths, which will provide a rare alternative source to China.
“The Black Swan event has materialized,” Lynas CEO Amanda Lacaze said in April.
MP Materials, the dominant U.S. producer of rare earths, has a heavy-rare-earth plant coming up in California and expects to begin commercial production of magnets by the end of the year at its factory in Texas. MP has an agreement to sell magnets to General Motors.
While such efforts could provide an important backstop for strategic industries such as defense, robotics and automotives, over the near term China will maintain a firm grip.
“We’re just bringing commercial-level alternative sources online,” said Baskaran, the rare-earths expert. “And then there’s a process of ramp-up.”
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