US-China Trade Talks Shed Light on China’s Critical Minerals Dominance

Key Takeaways:

• Although Sino-American negotiations suggest a potential easing of trade tensions, until the proposed deal has been implemented, it would be premature to conclude that the talks were successful.

• The centrality of rare earth export restrictions to the talks deal underscores their criticality to the US economy and the severity of Beijing’s hold on global supply chains.

• Strategies such as friendshoring are available for Western countries to address their overreliance on Beijing. However, as time will be required to produce tangible results, achieving a compromise with China is firmly within US interests.

Recent Developments

On 09 June 2025, US and Chinese officials concluded two days of trade talks at Lancaster House, SW1A 1BB, in London. The negotiations followed a rare 90-minute phone call between US President Donald Trump and Chinese President Xi Jinping aimed at easing trade tensions. Since an agreement on 12 May 2025 to roll back the majority of the triple-digit tariffs, resolving trade tensions has emerged as a shared priority. One major reason for Washington’s interest in coming to the table is Beijing’s utilisation of export controls on a range of critical rare earth minerals and magnets, exposing the US’ reliance.

During the negotiations, officials discussed China’s critical minerals dominance, trading accusations over slow approvals and export restrictions. Several days earlier, on 06 June 2025, Trump revealed that Xi Jinping had agreed to resume shipments of rare earth minerals to the US. After the discussions in London, officials on both sides stated that they had agreed on a “framework” to move forward on trade and US Commerce Secretary Howard Lutnick expressed his optimism that the critical minerals matter “will be resolved" as the deal is implemented. However, the framework must be approved by leaders in Washington and Beijing.

China’s Dominance

During a state visit to Inner Mongolia in 1992, then Chinese Leader Deng Xiaoping famously said: "The Middle East has oil and China has rare earths". Nearly three and a half decades later, China has established itself as the “dominant player in global critical minerals supply chains”; Beijing controls 70% of the world’s critical minerals output and handles the chemical processing for over 90% of the world’s rare earths. Between 2020 and 2023, China accounted for 70% of US rare earth imports, easily making it the country’s top supplier. This dominance is the result of decades of strategic government policies and investment. Toward the end of the 20th century, China prioritised the development of its mining and processing capabilities, benefiting from less environmental regulations and lower labour costs compared with Western competitors. While China ploughed ahead with its strategy to establish sector dominance, the US and its allies were “caught sleeping at the wheel”.

Risks to the West

With critical minerals being crucial to everything from smartphones and green technology to defence, concerns have grown among Western nations concerning China’s control. This has particularly increased since 2023, when China began introducing export restrictions on strategic materials flowing to the US in response to Washington’s tariffs. In April 2025, China suspended almost all exports of seven kinds of rare earth metals: dysprosium, gadolinium, lutetium, samarium, scandium, terbium, and yttrium. These measures were on top of an export ban on gallium, germanium, antimony, and graphite, imposed in December 2024. China is even believed to have cautioned South Korean companies against supplying goods to the US containing rare-earth metals from China. 

The shortages caused problems on a broad scale, with US manufacturers shutting down operations. As many industries rely on critical minerals, the impacts were extensive. One example is the green technology industry, which has struggled as a result of shortages in terbium and dysprosium, used to produce magnets for electric vehicle (EV) motors. This has resulted in supply chain bottlenecks, increased material costs, and delays in EV production. Although other countries such as the US, Australia, and India possess reserves of these materials, as the refining and processing process occurs predominantly in China, Beijing retains significant control over the supply chain.

Another industry impacted by the measures is defence. Restricted access to China’s rare earths put US ambitions of securing primacy at risk. Defence technologies such as F-35 fighter jets, Virginia- and Columbia-class submarines, Tomahawk missiles, radar systems, Predator unmanned aerial vehicles, and the Joint Direct Attack Munition series of smart bombs all require rare earth elements. The US is already on the back foot when it comes to manufacturing these defence technologies, with China acquiring weapons systems and equipment five to six times faster

Western response

With Beijing’s preparedness to weaponise its commanding grip on the rare earths supply chain for strategic purposes unlikely to subside, the situation has revealed a “critical need for global supply chain diversification”. While there is growing political will among Western nations to take the steps necessary to address the issue, the effectiveness of implemented strategies will become evident in the medium to long term.

The EU’s Critical Raw Materials Act aims to ensure that no more than 65% of annual consumption originates from a single third country. Although some analysts have labelled the objective as overly ambitious, any progress toward reducing reliance would mark a significant strategic step. Similar actions have been taken in the US. On 24 April 2025, Trump issued an executive order aimed at rapidly developing domestic capabilities for the exploration, characterisation, collection, and processing of critical deep-seabed minerals such as nickel, cobalt, copper, manganese, titanium, and rare earth elements. However, analysts have raised concerns that the US lacks the well-established infrastructure needed for such an endeavour, suggesting that capital investment and private sector participation will be needed.

Experts caution that developing alternative rare earth suppliers to replace China could take several years and pose challenges to vital industries. Nevertheless, historical examples have demonstrated that effective strategies can de-risk a supply chain. For instance, after China halted rare earth exports to Japan for two months in 2010 during a territorial dispute, Japanese trading group Sumitomo worked alongside the government in Tokyo to assist Australian company Lynas in expanding its mining capacity in Australia and processing capacity in Malaysia. This method, known as “friendshoring”, could play an important role in the West’s de-risking strategy.

The Road Ahead

While effective solutions to reduce the West’s vulnerability to China’s dominance in critical minerals may only be achievable in the medium to long term, this should not discourage efforts to pursue them now. While the challenges are cause for concern, the silver lining of these coming to light is the bolstering of the political incentive to act, where previously action was inhibited by an “insufficient appreciation of the scale and nature of China’s dominance”.

The renewed dialogue suggests a potential easing of trade tensions. However, challenges remain as both sides attempt to navigate differences concerning the trade war and other disputes, such as human rights and geopolitical influence. Additionally, with no deal finalised, it is too early to conclude that a meaningful breakthrough has been achieved. While the agreement may resume the flow of heavy rare earths to Western consumers, with tensions escalating between the pair in recent years, the deal is unlikely to facilitate a long-term truce. Trump’s tariff policy has continuously evolved and China has increasingly weaponised its grip over rare earths supply chains over the last two years. The only viable long-term solution to the crisis is to build alternative supply chains that reduce dependence on China.