The recent breakthrough in the China-US trade negotiations in London has seen both sides reaching a framework agreement on rare earth supply. The Chinese side has pledged to supply rare earth materials to the US in advance, while the US has agreed to relax some export control measures on high-tech products and restrictions on Chinese students studying in the US. This agreement is seen as an important signal of easing tensions in China-US trade relations. However, experts point out that China’s compromising stance in the negotiations may be closely related to the internal economic pressures and changes in power structure it faces.
President Trump announced on June 11 on the “Truth Social” platform that as a key component of the trade agreement, China will supply all necessary rare earth materials to the US in advance. As a condition of the exchange, the US will provide corresponding facilitation to China, including resuming educational exchanges such as Chinese students studying in the US.
US Secretary of Commerce Howard Lutnick and Chinese Vice Minister of Commerce and chief international trade negotiator Li Chenggang have confirmed that a framework agreement has been reached between the two sides and is awaiting final approval from the leaders of both countries.
According to the terms of the agreement, the US has set the total tariff on imports from China at 55%, while China’s tariff on imports from the US is set at 10%. Following the announcement, Chinese rare earth-related companies have responded positively, with companies such as JL MAG Rare-Earth and Minmetals Corporation obtaining export licenses, leading to a collective surge in rare earth concept stocks.
In early April, China implemented restrictions on rare earths, requiring exporters to obtain permits issued by Beijing authorities. Currently, China controls over 90% of global rare earth processing capacity, with rare earth products widely used in various sectors including automobiles, fighter jets, and household appliances.
In May, the US and China reached an agreement in Geneva, with China agreeing to expedite approvals for exports of magnets to the US in exchange for tariff reductions. However, delays in approvals affected US car production, prompting the US to suspend exports of jet engines, semiconductor manufacturing software, and ethylene to China. The recent Trump-Xi call last week led to the London meeting, where Beijing finally took action.
In response to China’s swift concessions this time, Shen Mingshi, a researcher at the Taiwan Institute for National Defense and Security Studies, analyzed for Dajiyuan, suggesting it may be closely related to the current internal political and economic pressures China faces. He pointed out that compared to Xi Jinping’s tough stance in the first round of China-US trade negotiations, this apparent softening of stance reflects a reassessment by decision-makers of the confrontation strategy with the US.
“With significant economic downward pressure on China currently, decision-makers are making tactical adjustments in their strategy towards the US,” Shen Mingshi believed. He stated that although the specific content of the framework agreement is limited, the breakthrough in rare earth supply and educational exchange – two key issues – indicates that China has indeed made substantive concessions in the negotiations.
Shen Mingshi further speculated that the calls between the leaders of China and the US on the eve of the negotiations, along with subsequent series of concession measures by China, may suggest that the negotiations received clear instructions from the highest decision-makers.
He also pointed out that there is no ruling out the influence of the “changes in the power structure at the top levels of the CCP” that some Western media have mentioned on the negotiation results. He believes Putin and Trump may have realized that Xi Jinping’s current power position is relatively unfavorable, thus hastening the negotiations and even setting a 55% high tariff as a further pressure tactic.
However, China has set a six-month deadline for rare earth export permits to US manufacturers, indicating that if trade tensions escalate again, Beijing may once again use this weapon against the US.
Chinese expert Wang He extensively analyzed the strategic position of rare earths in the China-US trade game for Dajiyuan. He stated that rare earths, as a key strategic raw material, play an irreplaceable role in modern high-tech industries.
As early as the 1980s, former CCP leader Deng Xiaoping put forward the strategic judgment that “the Middle East has oil, China has rare earths.” During the 2010 China-Japan Diaoyu Islands dispute, China cut off rare earth supplies to Japan, using rare earths as a diplomatic weapon for the first time. By 2018, during the outbreak of the China-US trade war, China used rare earths as a core bargaining chip in its negotiations with the US.
In the current backdrop of “China-US Relations 2.0,” Wang He analyzed that the internal political and economic situation in China is tightening, prompting them to play the rare earth card as a “last resort.” He emphasized that although rare earths themselves are not scarce, China’s dominance in refined processing capabilities concentrates largely within China, giving the CCP absolute control over the global rare earth supply chain.
“China is trying to exchange the rare earth card for major concessions from the US in key technology areas such as semiconductors,” Wang He explained. “However, if China goes all out on this issue, it will force Western countries to accelerate the establishment of an independent rare earth supply system, making China’s rare earth card strategically less valuable.”
Wang He believes that China’s decision to open up rare earth supplies for six months in the London negotiations indicates it has reached a point where it has no more cards to play. He analyzed that currently, the CCP is playing a strategy of flexible pressure, leaving room for both pressure and flexibility to prevent the US from fully establishing an independent rare earth supply system.
Trump announced on Wednesday (11th) that China will resume magnet and rare earth supply. However, China has set a six-month deadline for rare earth exports. Both sides must reach a comprehensive trade agreement by August 10, otherwise US tariffs will surge from 30% to 145%, and Chinese tariffs may rise from 10% to 125%.
It is widely expected that military enterprises will face the most severe challenges. US military enterprises have gradually stopped using magnets originating from China, but there are almost no military-grade magnets that do not contain rare earth components from China entirely.
From now until August 10, about 60 days remain. Wang He said that there are no significant technical barriers for Western countries to establish an independent rare earth supply chain, with the primary constraints being economic costs and environmental pollution issues. “But if China corners the West, relying on the West’s technological strength and financial advantages, establishing an independent supply chain is entirely feasible.”
In reality, the US and Europe are actively addressing the rare earth issue. According to the Wall Street Journal, the US rare earth production leader MP Materials is building a heavy rare earth factory in California and expects its factory in Texas to start commercial production of magnets by the end of this year. MP Materials has reached an agreement with General Motors to sell magnets to the latter.
These efforts provide vital security for strategic industries such as defense, robotics, and automobiles. However, rare earth expert Pascalan suggests that “we have just begun to operate commercially scalable alternative supply channels,” and “gradually increasing production capacity will require a process.”
Furthermore, the VDMA, the largest industrial association in Europe with 3,200 member companies in Germany’s mechanical equipment manufacturing sector, has urged the EU to put pressure on China over the rare earth issue. VDMA Executive Director Tilo Brodtmann called on the EU to negotiate the easing of material blockages with China. However, he stressed that in the medium to long term, other suppliers need to be identified.
On May 16, Australian Lynas Rare Earths Ltd issued a statement confirming the production of dysprosium oxide in its Malaysian plant, marking the first time a company has achieved commercial separation and production of heavy rare earths outside of China.
Experts recommend strategically reducing rare earth demand from the product design end as a potentially faster and more effective response before the new supply chain system is in place.
Eric Zheng, President of the Shanghai American Chamber of Commerce, told the Wall Street Journal that businesses operating in both the US and China will increasingly need to bifurcate their supply chains. “Overall, no matter how you define ‘de-risking,’ companies will continue to de-risk, essentially treating the US and China as two separate markets.”