Beijing’s restrictions on the export of rare earths are presenting President Trump with an opportunity to mend the strained relationship with long-term allies due to the ongoing trade war and to jointly tackle China’s economic bullying policies.
This week, at the annual Global Economic Leaders Summit held in Washington, responding to China’s new export controls on rare earth supply chain has become a major topic of discussion.
On Wednesday, US Treasury Secretary Scott Bessent stated that the Trump administration is “engaged in discussions with US allies, including the EU, Australia, Canada, India, and Asian democratic countries” to provide a comprehensive response to China.
The EU trade commissioner publicly criticized Beijing for weaponizing control over rare earths and urged the EU and G7 nations to take unified action against these restrictive measures.
Japanese Finance Minister Katsunobu Katō urged the G7 to “unite in response” to China’s actions. The German Finance Minister also mentioned that the G7 may take joint measures to counter it. The Australian Prime Minister is set to visit the US next week, seeking agreements on critical mineral supply chains, as countries are looking to reduce their reliance on Chinese rare earth sources.
China claims that the latest restrictions on rare earth exports are a response to the US’s expanding control. However, China has set stringent conditions, requiring exporters from anywhere in the world to apply for permits to sell products containing even small amounts of Chinese rare earths.
Christopher Beddor, Deputy Head of China Research at consulting firm Gavekal Dragonomics, told Bloomberg, “The biggest risk for Beijing is to overplay its hand. Disrupting the global rare earth supply chain would leave the impression that Beijing is needlessly causing pain to many countries.”
Bloomberg notes that whether Beijing underestimated the situation or tried to take advantage of it, the unfolding situation signifies a setback for China on the world stage. Just a few weeks ago, China had invited foreign leaders, including Indian Prime Minister Modi, in an attempt to signal that Beijing could be an alternative partner for countries struggling with diplomatic clashes with Trump.
US Trade Representative Jamieson Greer warned on Wednesday that the impact of China’s latest rare earth restrictions goes beyond “imagination” and could disrupt the supply of products ranging from AI systems to household appliances.
Greer stated that their restrictions would “cover globally” and cited trade in smartphones between South Korea and Australia and US-made cars being exported to Mexico, all of which could be paralyzed as a result.
“It’s clear that neither we nor our allies will accept this arrangement,” he said.
Greer mentioned that the US will ramp up domestic rare earth production, including government investments in private companies, and aim to relocate magnet production back to the country as much as possible.
He said, “Beijing’s actions are impacting globally, so our partners and allies are also considering taking similar actions; they are taking their own measures, and we are working hard to align with them.”
If governments worldwide, out of concern for China’s next steps, begin seeking diversified supply outside of critical minerals, it would be a significant loss for China.
Alicia Garcia Herrero, Chief Asia-Pacific Economist at a French trade bank, stated that once countries start reconsidering their rare earth supply strategies, they may turn away from these Chinese-dominated areas.
“If that happens, the ultimate loss to China will be very, very big,” she added.
Western countries, including the US, were historically significant producers of rare earths. However, with the decline of Western mining industries over the years, China gradually gained control over the production and processing of these strategic materials, leading to a monopoly.
Currently, China dominates global rare earth mining and production, accounting for about 70% of extraction and 90% of processing. Many countries’ rare earth ores are also shipped to China for refining.
Amid escalating US-China geopolitics, Western manufacturers like Tesla are increasingly seeking rare earth alternatives beyond China.
Some observers believe that it is no coincidence that China is taking a tough stance against the US ahead of the Fourth Plenum on October 20-23 in Beijing.
Official Chinese media applauded the latest rare earth restrictions, calling rare earths the ultimate weapon in US trade negotiations. A TV commentator openly referred to these measures as a “fatal blow” to the US.
However, by playing the rare earth card, China may not only fail to get the US to retract the latest sanctions but may also trigger a global backlash.
In an already tense US-China relationship, China cannot afford more trade tensions. Faced with excess capacity in key industries and a long-term real estate crisis and deflation spiral caused by oversupply and price drops, exports remain the only growth driver left for the Chinese economy.
US Treasury Secretary Bessent publicly criticized on Wednesday, mentioning that China’s Commerce Ministry’s Deputy Minister of International Trade Negotiations, Li Chenggang, showed up uninvited at the end of August and made threatening remarks. This indicates deep discontent within the Trump administration towards China’s lack of respect for bilateral negotiations.
The Financial Times reported on Tuesday that infighting between China’s Commerce Ministry and Treasury Department has affected US-China negotiations, with hardliners within the Communist Party and the National Security Department holding significant control over economic policies.
“If Beijing wants to become an unreliable partner in the world, the world must decouple,” said Bessent.