China holds the cards with rare earth minerals. It’s using them as leverage

It started as a battle over tariffs imposed by the United States. But as trade talks between the U.S. and China stretched to a second day in London on Tuesday, June 10, rare earth minerals and chips overtook tariffs as the heart of the negotiation between the world’s two largest economies. 

The U.S. is prepared to cede some export controls on chips in exchange for looser restrictions on China’s rare earth mineral exports, National Economic Council Director Kevin Hassett told CNBC on Monday, June 9. 

Hassett said he expected the meeting to be short with a “big, strong handshake.” Since then, the meetings have continued into a second day and may take a third. 

“Immediately after that handshake, any export controls from the U.S. will be eased, and the rare earths will be released in volume, and then we can go back to negotiating smaller matters,” Hassett said. 

He later clarified he wasn’t referring to easing up on the highest-end Nvidia chips, which the Biden administration originally put export restrictions on.  

With rare earth minerals, China holds the cards

China, which has an overwhelming monopoly on the production of rare earth minerals, had already begun pulling the lever before President Donald Trump started his second term. A renewed trade war amplified how far China would go. 

“In terms of [a] resource holder, in terms of processing facilities, in terms of production, there’s a very big footprint for China in this market,” global energy expert Carole Nakhle told Straight Arrow News. “We’ve started to see a growing trend towards greater resource nationalism in the metals and minerals industry.” 

Nakhle said China holds the best position when it comes to rare earth minerals, which are critical for newer energy sources. China currently controls about 90% of the world’s rare earth production capacity. 

Beijing wields its trade-war weapon

In December, China announced it would clamp down on exporting some of its rare earth minerals in response to a growing tech war with the U.S. The Biden administration had just expanded restrictions on sending advanced technology to China, with Nvidia caught in the crossfire. 

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China controls about 90% of the world’s production capacity for rare earth minerals.

Chinese officials limited restrictions to gallium and germanium, used in semiconductors, and antimony, used by the military for everything from a hardening agent for ammunition to sensors in night vision. 

But when Trump imposed hefty tariffs on China in April, the nation responded by cutting off the U.S. on a much larger scale. 

The April retaliation included export controls on seven rare earth minerals, including critical materials for magnets needed by the auto industry. 

In May, Reuters reported that American automakers warned Trump that the export controls could be so dire they may need to shut down assembly lines. The same month, a Chicago-based Ford Explorer factory temporarily shut down after a supplier ran out of magnets sourced from China, the company confirmed to The New York Times.

Despite agreeing to pause the strictest measures imposed by China and the U.S. during a May meeting in Geneva, both countries accuse the other of breaking that agreement. 

“China, perhaps not surprisingly to some, HAS TOTALLY VIOLATED ITS AGREEMENT WITH US. So much for being Mr. NICE GUY!” Trump posted to Truth Social on May 30. 

Revisiting older restrictions

While the most stringent export controls imposed by China are in response to Trump’s tariff policies, the country is using the escalation to renegotiate controls on chips and other exports imposed by the U.S. 

For several years, the U.S. has made moves to restrict advanced chip exports to China, aiming to curb the country’s ability to develop military technology and artificial intelligence that the U.S. claims could threaten national security. 

On Tuesday, the CEO of Chinese tech giant Huawei downplayed the future impact of chip export controls. 

In an article published in Chinese state media, Huawei CEO Ren Zhengfei said the company’s chips are one generation behind U.S. competitors but that they are finding ways to get around export controls using open-source and compound chips.  

Huawei has been a target of U.S. export controls since 2019, during Trump’s first term. 

This week, Trump gave Treasury Secretary Scott Bessent permission to “negotiate away” more recent U.S. restrictions on technology and parts needed for aircraft and chips, The Wall Street Journal reported. 

Bessent, Trade Representative Jamieson Greer and Commerce Secretary Howard Lutnick are at the London meetings with representatives from China. Lutnick said the meetings are “going really, really well” but may stretch into a third day.