[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 critical 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 a 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 vulnerability at the center of it all.

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

Sujai Shibakumar, Senior Fellow at the Center for Strategic and International Studies (CSIS) in Washington, D.C., recently emphasized in an interview with The Asia Business Daily that restructuring critical mineral supply chains, including rare earth elements, "is not an issue that can be resolved in a short period, like flipping a switch," underscoring the importance of a strategic approach. Shibakumar, who has studied 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 agreement, China pledged to grant a one-year grace period on its export controls of rare earth elements to the United States. In October, China's exports of rare earth magnets to the US reached 656 tons, the highest level in nine months since President Trump took office last January. However, even experts find it difficult to predict when the Chinese government might abruptly change its stance, as this remains an unknown territory.

When asked about the possibility of China changing its mind within a year, Senior Fellow Shibakumar responded that "uncertainty has increased because there are now more public statements and pressures, rather than the quiet, closed-door negotiations of the past," making predictions difficult. However, he also noted that "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 breakdown.

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

China was not always the dominant player in the rare earth and critical mineral markets. After US manufacturing shifted to China and other countries, the United States increasingly relied on imports rather than domestic mining, due to the high costs and environmental burdens associated with complying with environmental regulations. For a long time, US-China relations were relatively stable, and the offshoring structure-entrusting some resource and technology production to China-was considered economically rational.

Senior Fellow Shibakumar stated, "However, the COVID-19 pandemic clearly exposed how vulnerable the US supply chain is," emphasizing that "the concentration of mining and refining of minerals essential for semiconductors, batteries, and advanced technologies in China is now perceived as a serious risk to both US industry and national security." In fact, when the US implemented export controls on semiconductors and other technologies, China began to use critical minerals as leverage. He likened this to "both countries moving different pieces on a chessboard to expand their strategic space."

Additionally, China has been criticized for intentionally distorting the global mineral market through massive industrial subsidies and dumping practices. Such direct market intervention has prevented the 'invisible hand' from functioning. Conversely, in recent times, China's export controls have caused the prices of rare earth and other minerals to skyrocket exponentially. According to a report by The Wall Street Journal (WSJ), in August, the prices of certain minerals used in defense industries such as fighter jets and drones 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 state support, while US companies must primarily reinvest their own profits into research and development. If US companies lose access to overseas markets, their capacity for reinvestment diminishes, which in turn puts them at a disadvantage in long-term technological competitiveness." He added, "The United States is trying to adapt to this new competitive environment, but quick results should not be expected."

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

One key question is whether President Trump, who must confront China holding the powerful card of rare earth and critical minerals, can achieve different results from his predecessors. Since the Barack Obama and Joe Biden administrations, the United States has placed critical mineral security at the center of its energy strategy, but ultimately failed to contain the Chinese government. Since taking office in January, President Trump has pursued both the rebuilding of domestic mining and the establishment of alternative overseas supply chains as part of his supply chain restructuring plan.

In July, MP Materials, a rare earth supplier headquartered in Nevada, signed a large-scale public-private partnership with the US Department of Defense, including minimum purchase price guarantees, financial support, and equity acquisition. Subsequently, companies such as Apple and JP Morgan announced long-term supply and large-scale investment plans, 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 on more concentrated and direct methods, making the development and reopening of US mines a core objective." He continued, "While supply chain management was often conducted within multilateral frameworks in the past, the strategy is now shifting toward rapidly building regional networks."

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

The Trump administration is also taking a much more proactive stance on overseas resource diplomacy. Its interest in Greenland, Ukraine, and the Congo, as well as discussions on deep-sea mineral development, are prime examples. In particular, President Trump's "territorial ambitions" regarding Greenland can be understood in this strategic context. In a March interview with NBC, President Trump declared, "We will take Greenland. One hundred percent," causing a global stir.

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

Addressing criticism that the costs of building new infrastructure in foreign countries may outweigh the expected benefits, Senior Fellow Shibakumar pointed out, "Cost burdens are a practical issue, but they are manageable within the broader framework of US strategy," adding, "Investing in multiple locations allows for the benefits of a portfolio strategy to mitigate risk."

He also advised, "The United States must accept the reality of mutual dependence with China, especially the fact that China holds the 'cards.' In particular, many assess that the semiconductor export control strategy is not very effective and actually slows the pace of innovation in US industry. China's use of rare earth regulations in response is part 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 United States must pursue short-, medium-, and long-term strategies simultaneously to reduce its dependence on China, and cooperation with allied countries is essential."