[Mineral War ①] One-Year Suspension of China's Rare Earth Export Controls: "Negotiation Uncertainty Grows"

Shibakumar, Senior Fellow at CSIS
"Not an Issue That Can Be Resolved in the Short Term"
Cooperation with Allies Is Essential

Editor's NoteRare earth elements are not just ordinary raw materials. They are essential resources that underpin strategic industries in every country, such as artificial intelligence (AI), semiconductors, defense, and electric vehicles. The problem is that these indispensable resources are excessively concentrated in China, meaning that geopolitical tensions can immediately amplify into resource risks. This goes beyond mere price fluctuations, directly impacting industrial competitiveness, national security, and even technological supremacy. South Korea is no exception. With its robust manufacturing base and high dependence on rare earth elements, the South Korean economy could be hit hard by production disruptions and weakened competitiveness the moment China tightens its supply chain. In a series of three articles, we examine the current state of US-China competition over rare earth elements, future scenarios, and South Korea's vulnerabilities at the center of it all.

"A one-year grace period is not enough for the United States to bring its critical mineral supply chains to a stable level."

Sujai Shibakumar, Senior Fellow at the Center for Strategic and International Studies (CSIS) in Washington, D.C. (photo), emphasized the importance of a strategic approach in restructuring critical mineral supply chains such as rare earth elements during a recent interview with The Asia Business Daily. He stated that this is "not an issue that can be resolved in the short term, like flipping a switch." Shibakumar, an expert who has researched US competitiveness and innovation strategies for over 20 years, also serves as Director of the Renewing American Innovation (RAI) program.

Sujai Shibakumar, Senior Fellow at the Center for Strategic and International Studies (CSIS) in the United States (photo), is conducting a video interview with The Asia Business Daily. He emphasized the importance of a strategic approach regarding the restructuring of critical mineral supply chains such as rare earth elements. Photo by Minyoung Cha

US President Donald Trump and Chinese President Xi Jinping held a summit in Busan at the end of October and agreed to "refrain from escalating the trade war." As part of this, China pledged to grant a one-year grace period on its rare earth export controls to the United States. In October, China exported 656 tons of rare earth magnets to the US, the highest monthly volume in the nine months since President Trump took office in January. However, even experts find it difficult to predict when the Chinese government might abruptly change its stance.

When asked about the possibility of China changing its mind within the year, Senior Fellow Shibakumar responded, "Uncertainty is even greater now because there are more public statements and pressures exchanged, rather than the quiet, closed-door negotiations of the past," making predictions difficult. However, he also noted, "Both countries understand that a basic level of stability in US-China relations is necessary for economic stability and growth," and assessed that it is unlikely the relationship will deteriorate into a fundamental rupture.

Pandemic Exposed US Supply Chain Vulnerabilities: "A Structural Imbalance"

China was not always the dominant player in the rare earth and critical minerals market. After US manufacturing shifted overseas to countries like China, the United States increasingly relied on imports rather than domestic mining, due to the high costs and environmental burdens of complying with environmental regulations. For a long time, US-China relations were relatively stable, and offshore outsourcing of resources and some technology production to China was considered economically rational.

Senior Fellow Shibakumar emphasized, "However, the COVID-19 pandemic clearly revealed how vulnerable US supply chains are," and pointed out that "the concentration of mining and refining of minerals essential for semiconductors, batteries, and advanced technologies in China is now seen as a serious risk to both US industry and national security." In fact, when the US began implementing technology export controls, including on semiconductors, China started using critical minerals as leverage. He likened this to "both countries moving different pieces on a chessboard to expand their strategic space."

In addition, China has been criticized for intentionally distorting the global minerals market by using massive industrial subsidies and dumping tactics. This direct market intervention has prevented the "invisible hand" from functioning. Conversely, due to China's recent export controls, prices of rare earths and other minerals have skyrocketed. In August, the Wall Street Journal (WSJ) reported that the prices of some minerals used in defense industries such as fighter jets and drones had increased fivefold compared to before China's export controls.

Senior Fellow Shibakumar viewed this as a problem of structural imbalance. He explained, "Chinese companies receive direct and indirect government support, whereas US companies must primarily reinvest their own profits into research and development. If US companies lose overseas markets, their capacity for reinvestment shrinks, which is a disadvantage in long-term technological competitiveness." He added, "The US is trying to adapt to this new competitive environment, but rapid results should not be expected."

Trump's Changed Approach: "Domestic Mining Development + Overseas Resource Diplomacy"

One key point to watch is whether President Trump, who must contend with China holding the powerful cards of rare earths and critical minerals, can produce different results from his predecessors. Since the Barack Obama and Joe Biden administrations, the US has placed critical mineral security at the center of its energy strategy, but ultimately failed to curb the Chinese government's dominance. Since taking office in January, President Trump has pursued a dual approach to supply chain restructuring: rebuilding the domestic mining industry and establishing alternative overseas supply chains.

In July, MP Materials, a rare earth supplier headquartered in Nevada, signed a large-scale public-private partnership with the US Department of Defense, which included minimum purchase price guarantees, funding support, and equity acquisition. Following this, companies such as Apple and JP Morgan announced long-term supply and large-scale investment plans, further expanding the partnership into a substantial supply chain strengthening collaboration.

Senior Researcher Shibakumar is speaking in a video interview. Photo by Cha Minyoung

Senior Fellow Shibakumar explained, "Previous administrations tried to approach critical mineral supply chains through multilateralism," whereas "the Trump administration is focusing more intensively and directly on domestic mine development and reopening as its core objective." He continued, "In the past, supply chain management often operated within multilateral frameworks, but now the strategy is shifting toward rapidly building regional networks."

The approach to overseas markets also differs from previous administrations. The US is quickly establishing bilateral and trilateral partnerships with countries such as Indonesia, the Philippines, India, and Australia. This aligns closely with President Trump's values, which reject the necessity of multilateral organizations like the World Trade Organization (WTO) and the International Monetary Fund (IMF).

The Trump administration is also much more proactive in overseas resource diplomacy, as seen in its interest in Greenland, Ukraine, and the Congo, as well as discussions about deep-sea mineral development. In particular, President Trump's "territorial ambitions" regarding Greenland can be understood as part of this strategic objective. In a March interview with NBC, President Trump made global headlines by stating, "We will take Greenland. 100%."

"The US Must Accept the Reality of China's Leverage... Cooperation with Allies Is Essential"

In response to criticisms that the costs of building new infrastructure in foreign countries could outweigh the expected benefits, Senior Fellow Shibakumar noted, "The cost burden is a real issue, but it is manageable within the broader framework of US strategy," and pointed out that "investing in multiple locations allows for the benefits of a portfolio strategy to diversify risk."

At the same time, he advised, "The US must accept the reality of its mutual dependence with China, especially the fact that China holds the 'cards,'" and added, "In particular, the semiconductor export control strategy is widely seen as ineffective and actually slows the pace of innovation in US industry. China's use of rare earth regulations in response is an extension of this dynamic."

These remarks are consistent with his view that the resource competition between the two countries should be defined not as a "war" but as a "strategic negotiation game." Senior Fellow Shibakumar repeatedly emphasized, "The US must pursue short-, medium-, and long-term strategies to reduce dependence on China, and cooperation with allies is essential."