US Dependence on Chinese Rare Earth Elements

By Joel Wong

Rare earth elements (REEs) are a critical leverage point for China in the 2025 US-China trade negotiations, serving as a powerful bargaining chip due to China’s dominance over the global supply chain and the US’s heavy reliance on these materials for strategic industries. Below is an analysis of their importance, grounded in available information and web sources, summarized in five key points:

China’s Supply Chain Dominance: China controls approximately 60-70% of global REE mining and over 90% of processing, including 99% of heavy REEs like dysprosium and terbium, which are vital for defense, automotive, and high-tech applications (e.g., F-35 jets, EV motors, semiconductors). This near-monopoly gives China significant leverage to disrupt US supply chains by imposing export restrictions, as seen in April 2025 when Beijing curbed exports of seven REEs in retaliation for US tariffs.

Impact on US Industries and Defense: The US relies on China for 70% of its REE imports, with no immediate domestic or alternative sources to fill the gap. Restrictions have already caused disruptions, such as factory shutdowns (e.g., Ford’s Chicago plant) and concerns over military readiness, as REEs are essential for advanced weaponry and electronics. This vulnerability makes REEs a potent tool for China to pressure the US in negotiations, particularly to counter US restrictions on Chinese tech exports like AI chips.

Strategic Use in Trade Talks: China has historically weaponized REEs, such as halting exports to Japan in 2010 over a territorial dispute, and views them as a national security asset rather than just a trade issue. In 2025, Beijing’s export licensing system allows it to slow or halt shipments without formally violating trade agreements, giving China flexibility to escalate or de-escalate based on negotiation progress. Analysts note that China links REE access to concessions on US tech restrictions, enhancing its bargaining power.

Limited US Alternatives: Despite US efforts to build domestic REE supply chains (e.g., $439 million in Department of Defense investments since 2020), projects like MP Materials and Lynas USA will not meet demand until at least 2027, producing only a fraction of China’s output. Alternatives from allies like Australia or Brazil are limited, and recycling or reprocessing cannot scale quickly enough, making China’s control a critical advantage in short-term negotiations.

Geopolitical Leverage and Long-Term Strategy: China’s REE restrictions not only target economic outcomes but also signal its ability to challenge US military and technological primacy. By maintaining export controls even after the May 2025 Geneva tariff truce, China underscores its unwillingness to fully relinquish this “trump card,” as described by Chinese scholars and state media, to secure favorable terms in broader trade and geopolitical disputes, including tensions over Taiwan and technology.

Conclusion: REEs are a central and powerful trump card for China in the 2025 US-China trade negotiations, leveraging US dependence to extract concessions on tariffs and tech restrictions. While the US is working to reduce reliance, its current vulnerability ensures China’s REE dominance remains a decisive factor, shaping the pace and outcome of talks.