China’s rare earth policy can ‘forbid any country on Earth from participating in the modern economy’

China’s Ministry of Commerce said on Thursday that starting Dec. 1, a license will be required for foreign companies to export products containing more than 0.1% rare earth elements from China or made using Chinese production technology.

That prompted president Donald Trump to announce on Friday that he would impose an additional 100% tariff on China and limit US software exports. But even though it looked like the latest tit-for-tat in the US-China trade war, there is a lot more at stake.

“We must not miss the basic point about rare earths: China has crafted a policy that gives it the ability to prevent any country on Earth from participating in the modern economy,” Dean Paul, who served as senior adviser in the White House Office of Science and Technology Policy earlier this year, wrote in X on Saturday.

“They are able to do this because they worked hard to build industrial capacity that no one else had the courage to build. And they were willing to bear the costs – financial, environmental and other – to do so. Now the rest of the world must do the same.”

China dominates rare earths, producing more than 90% of the world’s rare earth elements and rare earth magnets. They are used in various industries, from the technology sector to automakers and defense contractors.

They are so important that US auto companies have cut production due to rare earth shortages as China takes advantage of the supply to counter Trump’s tariffs.

While ongoing talks between Washington and Beijing have eased access somewhat, trade tensions had been escalating before the latest escalation on Friday.

For example, the United States has moved to restrict other countries’ exports of semiconductor-related products to China. Last week, the United States announced port fees on Chinese ships, prompting Beijing to impose similar fees on American ships calling at Chinese ports. China has also launched an antitrust investigation into US chipmaker Qualcomm.

“In other words, the United States can cut off China from today’s chips, but China can make it very difficult to build the chips and other advanced technologies of tomorrow,” Michael Froman, president of the Council on Foreign Relations and a former US trade representative, said in a Substack post on Friday.

Economist Robin Brooks, a senior fellow at the Brookings Institution, noted that markets expect Trump’s new Chinese tariff threat to backfire on the United States.

But he rejected the idea that China has the upper hand over the United States, saying in a post on Sunday that its exporters are suffering a sharp decline in profits due to Trump’s tariffs.

“This means that China may be using rare earths to escalate the confrontation with the United States because it has no other choice,” Brooks explained. “The hit to the export sector is so great that it is necessary to increase risks in an attempt to reduce US tariffs.”

For its part, Beijing has remained defiant, with the Commerce Ministry saying on Sunday that China does not want a tariff war but also does not fear one. It also said that the export controls do not represent a ban on rare earth shipments but rather a sovereign right.

China’s strict controls on rare earths represent an opportunity for the rest of the world to build a new supply chain that can withstand weaponization by any country, said Paul, a former White House adviser who is now a senior fellow at the Foundation for American Innovation.

“Always remember that supply is elastic,” he added. “If our lives depended on it, we could overcome many challenges much faster than policy planners in Beijing, Brussels and Washington realize.”

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