[Global Focus] The 'Rare Earth War' Intensifies... Prepared China vs. Counterattacking U.S.

'Weaponization of Rare Earths'... China Was Prepared
U.S. Counterattack... Simultaneous Domestic and International Efforts to Build Supply Chain

Rare earth elements are at the center of the resource hegemony competition between the United States and China. China, which leads global rare earth production, is using this as leverage in trade negotiations, while the United States is accelerating its efforts to achieve supply chain independence through domestic and foreign investments and government intervention. The confrontation between the two countries over rare earths, which are considered strategic resources, is expanding beyond short-term conflict into an all-out battle for national security and securing key technologies.

'Weaponization of Rare Earths'... China Was Prepared

On April 4 (local time), the Tariff Policy Commission of the State Council of China criticized then-U.S. President Donald Trump's plan to impose high tariffs on Chinese imports, calling it "a typical act of hegemony that seriously undermines China's legitimate rights and interests," and announced retaliatory tariffs in response. Along with this measure, the Chinese Ministry of Commerce additionally announced export controls on seven types of rare earths to which the United States is virtually entirely dependent on China. This move signaled that China was fully deploying its "rare earth card" to gain an advantageous position in the trade war with the United States. Last month, during the second round of U.S.-China trade talks held in London, China resumed exports of H20 chips on the condition that it would lift export controls on rare earths. The South China Morning Post (SCMP) reported that experts viewed this as "a clear victory for China."

The reason why China's rare earth sanctions have become so powerful lies in the historical process through which China came to dominate the rare earth market. Over a long period, China has secured control over the global rare earth supply chain through meticulous planning and consistent policy. In the early 1990s, former Chinese President Deng Xiaoping declared the value of rare earths by saying, "The Middle East has oil, China has rare earths," and the country began building the supply chain under state leadership. Since then, China has blocked foreign investment in mining while selectively encouraging investment in processing sectors to absorb refining technology, and rapidly expanded its production base through low labor costs and lax environmental regulations. In contrast, the United States closed major mines due to profitability issues, resulting in not only the loss of rare earth refining technology but also assets being transferred to China. In particular, as U.S. companies transferred magnet technology to China, China's rare earth production capabilities advanced even further. Through long-term strategy and changes in the international industrial order, China has emerged as the country that effectively leads every stage of the process, from mining to refining to the production of finished magnets.

A worker is operating at a rare earth metal mine in Nancheng County, Jiangxi Province, China. Photo by Reuters Yonhap News

The reason China continues to hold onto its dominance over rare earths is due to their unique properties and irreplaceability. Rare earths are absolutely essential materials for manufacturing core industrial components such as electric vehicles, semiconductors, and wind turbines. In particular, heavy rare earths such as dysprosium and terbium are even more valuable due to their scarcity and mining difficulty, and are indispensable elements for military satellites, stealth fighter jets, and guided missiles. Rare earths are difficult to refine and process, requiring advanced technology for mass production. For some specific elements, there are no substitutes at all, making the securing of rare earths a decisive factor in determining each country's competitiveness in the technological hegemony race.

Experts have assessed that China's rare earth export controls are evolving beyond mere negotiation leverage into a new form of economic sanction. Chris Miller, a professor at Tufts University and author of "Chip War," said, "China's use of the 'rare earth card' this time brought the manufacturing industries of advanced countries worldwide to the brink of a standstill in just a few weeks, and even undermined the tariff policies that the United States had considered so important." He added, "What is noteworthy is that Western governments and companies were completely unprepared for China's rare earth sanctions. China has been building the foundation for controlling the export of this strategic resource, analyzing the weakest points of its counterparts and adjusting the level of pressure, thereby refining its 'weapon' with greater precision."

U.S. Counterattack... Simultaneous Domestic and International Efforts to Build Supply Chain

According to a report released last year by the U.S. Geological Survey (USGS), about three-quarters of the rare earths imported by the United States between 2019 and 2022 came from China. In this situation, the United States is busy working toward supply chain independence for rare earths, which are directly linked to national security. On the 12th of last month, the Export-Import Bank of the United States (EXIM), an agency under the federal government, sent a letter of intent (LOI) regarding a loan to Critical Metals, a U.S. mining company pursuing the development of the Tanbreez mine in southern Greenland. Through this project, Critical Metals plans to produce up to 85,000 tons of rare earth concentrate (unrefined minerals) annually starting as early as 2026. The Export-Import Bank explained that this loan is part of a program designed to support companies competing with China. Critical Metals stated that it plans to import rare earths mined in Greenland to the United States for refining, and expects that this loan will be a significant help in securing related infrastructure.

In addition to developing overseas mines such as in Greenland, the United States is also accelerating efforts to strengthen its domestic rare earth production capacity. On the 10th, the U.S. Department of Defense signed a contract to acquire 15% of the preferred shares of MP Materials (hereafter MP), the largest rare earth mining company in the United States, by investing $400 million (about 550 billion won). As the largest shareholder of MP, the Department of Defense plans to expand rare earth manufacturing facilities to more than ten times their current size through additional multi-billion dollar investments in the future.

Furthermore, the Department of Defense has pledged to guarantee a minimum price for the rare earths produced by MP over the next ten years at nearly double the current market rate. This move is intended to create a favorable trading environment for domestic companies and counter China's dominance of the market through low prices. MP emphasized that its cooperation with the Department of Defense marks "an important turning point for the United States to foster the rare earth industry and break its dependence on China."

A rare earth refining facility located at the Mountain Pass mine in California, USA. Photo by Reuters Yonhap News

Some argue that the United States should actively relax regulations to allow the private sector to take the lead in developing rare earth mines domestically. Former Republican Senator Frank Murkowski said, "The alternative for the United States to stop relying on China lies within America itself. Alaska contains key minerals that are in high demand worldwide." He pointed out, "However, to develop this land, one must obtain permits from numerous federal agencies and overcome complex regulations, making development virtually impossible." He added, "To improve this situation, a presidential executive order is needed. Whether this area is developed depends on the 'will' of the United States."

The Wall Street Journal (WSJ) reported that if the United States successfully internalizes its rare earth supply chain, results could be seen in as little as three years, but there are still many challenges to overcome. In particular, to expand rare earth magnet production, more heavy rare earths must be secured, but there are structural limitations as there are few producers of heavy rare earths outside of China.

Mark Jensen, CEO of U.S. metal refining technology company ReElement Technologies, pointed out that in order to lead the rare earth supply chain, it is essential not only to secure mining volume but also to develop refining and processing capabilities. Jensen said, "If the United States wants to achieve independence in the rare earth supply chain, it must secure midstream technologies, including magnet manufacturing," and emphasized, "In particular, new innovations are needed in the refining of high-purity compounds, metallization, and magnet production technologies."