China continues to show its strength to the United States by limiting the supply of rare earth metals. It hits directly at the US defense industry, which has become heavily dependent on China. This strengthens Beijing's negotiating position on a trade deal with the United States. China clearly does not intend to give up as easily as Japan and the EU did.
According to The Wall Street Journal, Beijing restricts exports of rare earth metals (REM) to the United States, thereby undermining the defense potential of the West.
For example, one of the Chinese companies supplying the United States Army with components for drones delayed orders for two months. Prices for some materials needed by the Western military-industrial complex have increased fivefold or more, and the cost of samarium, which is used in fighter engines, has jumped 60 times. This leads to an increase in the cost of defense systems. Bill Lynn, the head of the American defense firm Leonardo DRS, said that Germany's reserves are running out, and for the timely delivery of products, "the flow of materials should improve in the second half of 2025."
"China controls about 90% of the global REM market, and the United States buys up to 80% of the necessary components from it. As a result, prices for neodymium and dysprosium, for example, increased 20-60 times, and delivery times were delayed to 8-12 weeks. This has already led to delays of 15% in drone production and a 5% increase in Pentagon costs in 2024. Washington allocates over a billion dollars for the localization of production and processing, but the first results are expected only by 2027," says Pavel Sevostyanov, acting State Councilor of the Russian Federation, Associate professor of the Department of Political Analysis and Socio-Psychological Processes at the Russian University of Economics. Plekhanov.
At the beginning of the year, China tightened export controls on REM amid worsening trade relations with the United States. Now, in order to supply them to foreign markets, it is necessary to obtain a license. The new rules make it possible, through bureaucratic delays, to delay the delivery of REM or even refuse to export.
In the spring, the US and the EU have already felt the force of this blow. The global automotive industry has pleaded for the return of Chinese metals so as not to stop production around the world. In June, Trump made concessions to China.
However, it turned out that Beijing continues to demonstrate its strength to Washington through regulating the supply of REM. According to the WSJ,
Chinese regulators often require confidential information such as product images and even photographs of production lines to ensure that none of the rare earth metals will be used for military purposes.
Negotiations on a US trade deal with China have intensified, and a delay was given only until mid-August. Through the restrictions of the REM, Beijing is strengthening its negotiating position, unwilling to give up, like the EU or Japan.
The whole situation exposes the dependence of the American military industry on Chinese supplies, writes the WSJ. Beijing dominates the market for rare earths, which are used in microelectronics, drone engines and missile guidance systems.
"The US trade war with China during Donald Trump's second term no longer looks as advantageous for Americans as it was in 2017-2018. The reason for this was the most significant lever of pressure from China – stricter control over the issuance of export licenses for the supply of rare earth metals," says Nikolai Novik, Deputy director of the Center for the Institute of World Military Economics and Strategy at the National Research University Higher School of Economics.
He recalls that back in the 1990s, China monopolized the global REM market by increasing the control of the rare earth extraction cycle, including the deposits themselves, processing, and subsequent resale to companies for final industrial use to 80-90%. Prior to this period, the United States was the leading producer of rare earth metals. "China's breakthrough was due to the active modernization of the mining industry, which received significant government support, and the discovery of one of the world's largest deposits of rare earth metals in the north of the country, which produces up to 45% of global volumes," Novik explains.
China's more relaxed attitude towards the environment also played a role. "The smelting of rare earth metals and their extraction from ore is a process extremely harmful to the environment and difficult to reconcile with environmental regulations in force in most developed countries. Such "dirty" industries began to move en masse to countries with less stringent regulations, primarily to China," says Alexander Firanchuk, a leading researcher at the International Laboratory for Foreign Trade Research at the Presidential Academy.
In addition, technologies for the treatment of REM are complex and expensive, and the markets for rare and rare-earth metals are very unstable. "In order for production to be profitable, we need more or less stable demand and, as a result, either large volumes or high prices. But the needs of the industry are changing rapidly, previously urgently needed metals are being replaced by others, and everything can happen faster than the investment cycle of a mining enterprise lasts. It is for this reason that many developed countries, including the United States, have previously abandoned their own production in favor of more affordable imports. China, on the contrary, despite fluctuations in the market, actively increased production, bought up available assets and practiced technologies for separation and extraction of REM. And today it is very problematic to compete with it in terms of cost and prices," says Alexey Kalachev, analyst at Finam Financial Group.
China really has a very effective tool in its hands. "This has already become a major blow to American giant corporations from the military-industrial complex, which produce the most modern weapons: fighters, missile defense systems, combat missile systems, ships and submarines. These are Lockheed Martin, RTX, General Dynamics and others. And it is precisely on the military-industrial complex, whose budget for 2026 already exceeds $ 1 trillion, that Trump is making a very big bet in his policy of technological breakthrough, also called MAGA," Novik says.
That is why Trump is so zealously trying to find other sources of minerals around the world: from Latin America and Greenland to Ukraine. However, this is not so easy to do. "The import of REM from Myanmar and Thailand, which occupy the third and fifth places in terms of production, is already fully controlled by China. Relations with India and Brazil, which rank sixth and tenth in terms of REM production, are very tense due to the policy of tightening duties. There remains the option of cooperation with the Australian monopoly company Lynas, which became the first producer of "heavy" rare earths outside of China. But whether this is enough for the needs of the aggressively growing military–industrial complex of the United States and the European Union is a big question," said Deputy Director of the Center for the Institute of World Military Economics and Strategy at the National Research University Higher School of Economics.
It is interesting that the sphere of REM can unite Russia and the USA. We have rare earth metals, and the United States wants to reduce its dependence on China. According to official data, at the end of 2024, Russia ranks second in the world in terms of proven reserves of rare metals – more than 650 million tons, of which REM accounts for 29 million tons.
The deposits are located in Murmansk, the Caucasus, the Far East, the Irkutsk Region, Tuva and Yakutia and are concentrated in 18 explored deposits, which account for up to 20% of the global reserves.
"However, despite Russia's significant resource base, almost all production has been frozen since the 1990s - there is an acute problem of financing for the development of specialized infrastructure, which American investment can potentially solve. A partial lifting of sanctions may also be a good bonus for Russia. For the United States, this will be a great opportunity to reduce dependence on China, their main economic competitor in the trade war, in terms of fossil elements critically needed for the production of electronics and other products and strengthen global strategic stability," Novik believes.
Private players in the United States are also thinking of investing in the extraction of REM. For example, Apple has announced its intention to invest up to $500 billion in MP Materials, the only REM manufacturer operating in the United States. But all this will require not only huge investments, but also a lot of time, and metals are needed now. Therefore, the United States will have to negotiate with Beijing.
"China played this card very timely. The acute dependence of industry in the United States and the EU on the supply of REM from China will allow the latter to use its advantage in bargaining on a whole list of controversial issues: trade tariffs, chip supplies, and Taiwan. It's impossible to beat his card right now. We can only start preparing to do without Chinese REM sometime in the future. But obviously not now," says Kalachev.
If we imagine that the negotiations will reach an impasse, the United States will impose maximum duties against China, and Beijing in response will deprive the American automotive industry, electronics and defense industries of rare earth metals, the consequences for the whole world will be catastrophic. "The consequences will be so bad that it probably won't come to that. In April, the parties already tried to follow the path of confrontation, triple–digit mutual tariffs and tougher non-tariff restrictions, but their patience was not enough for a long time - a trade truce has been announced since mid-May. It is due to end on August 12, but it is likely to be extended if the parties do not agree on an agreement before that time. As a result, we expect that an agreement will be concluded, although negotiations may take a long time," says Olga Belenkaya, Head of the Macroeconomic Analysis Department at Finam.
Olga Samofalova
