How rare earths can serve as a key weapon in China's trade war with the U.S.

By Myra P. Saefong

China's monopoly on metals processing is one of the most powerful economic weapons in its arsenal

China has announced plans to expand its restrictions on rare-earths exports.

China leads the world when it comes to the production and processing of rare earths. That may be a key weapon in its trade battle with the U.S. - and its move to expand export restrictions on those elements shows that China knows it.

The U.S., meanwhile, has been taking small steps to ease its reliance on Beijing for these critical materials, making China's efforts to tighten control of the market a little less effective.

The country's "rare-earth dominance remains its most visible pressure point in the trade conflict - a weapon that can sting, but not guarantee victory," said Stephen Innes, managing partner at SPI Asset Management.

China's 'rare-earth dominance remains its most visible pressure point in the trade conflict - a weapon that can sting, but not guarantee victory.' Stephen Innes, SPI Asset Management

On Oct. 9, China announced that it would expand restrictions on its exports of the elements, ahead of a meeting between Chinese President Xi Jinping and U.S. President Trump expected later this month. The world's biggest rare-earths producer and processor had already imposed export restrictions on seven rare earths back in April, in response to the Trump administration's tariffs.

Read: Why it's nearly impossible for America to meet its rare-earth needs after China's export restrictions

Restricting exports of these elements "sends a sharp message because rare earths are embedded in every strategic technology the U.S. cares about," Innes told MarketWatch. Those include electric-vehicle batteries, artificial-intelligence servers, wind turbines and jet fighters - and Beijing "knows this chokepoint gives it short-term bargaining power."

U.S. Trade Representative Jamieson Greer said at a press conference this week that he doesn't expect China to actually implement its restrictions on rare earths, given the scope and scale of its plans.

Still, "Beijing's dominance in both mining and refining these elements gives it the sort of asymmetric leverage that once belonged to OPEC," said Innes. OPEC stands for the Organization of the Petroleum Exporting Countries, a group of major oil producers who hold most of the world's proven crude-oil reserves.

"But unlike crude oil, rare earths are a subtler weapon - they don't flow through pipelines, they flow through supply chains," Innes said in recent commentary. "Cut them off, and you don't get an energy shock - you get a slow-motion suffocation of industrial capacity."

Weaponizing rare earths

After Beijing said it planned to expand its rare-earths export restrictions, Trump wrote on Truth Social last week that China was "becoming very hostile."

He questioned whether there was still reason to meet with Xi later this month, though comments from U.S. Treasury Secretary Scott Bessent Wednesday suggested that the meeting is still on. In a separate post, Trump threatened a tariff of 100% on Chinese goods, above already existing tariffs, beginning on Nov. 1.

Read: Trump suggests 'massive increase' of tariffs on China. Here's what's behind the threat.

There is "no way that China should be allowed to hold the world 'captive,' but that seems to have been their plan for quite some time, starting with the 'magnets' and other elements that they have quietly amassed into somewhat of a monopoly position," Trump wrote.

Nick Myers, co-founder and chief executive of U.S.-based rare-earth metals production company Phoenix Tailings, suggested that China's strongest weapon in its "economic arsenal" is its "clear monopoly of the world's metal processing." He said the country mines around 65% of the world's rare earths, but processes more than 97% of them.

In many cases, China purchases the mined products (concentrate) or initially processed products (oxide) at a very high premium in the market, and sells the finished metal at a steep discount, Myers told MarketWatch. "This has limited the ability for non-China processing companies to operate or even start up."

An F-35, for example, isn't made of either mined concentrate or separated oxide, Myers explained, but by the final metal. The value chain for rare earths goes from concentrate, which is either mined or recycled, to separated oxide, which is the first part of refining, to the final metal and alloy - the last part of refining.

Myers's company said in 2023 that its Massachusetts facility was producing the first commercial-scale critical rare-earth metals in U.S. The firm is set to open a commercial metalization facility in Exeter, N.H., on Oct. 23, which it says would be one of the largest metalization operations outside of China.

The plant itself will have "zero reliance on China" and will operate with no direct emissions or waste, said Myers. It will handle the metalization and alloying part of the rare-earths supply chain - one of the key areas China has used to control the sector, he noted. "With this plant coming up online, the United States will have another weapon to defend the American people from this threat."

Alternative sources

The U.S. has indeed made strides toward finding alternative sources for rare earths, not just in terms of production but for processing these elements too.

China's leverage may be "fleeting," said SPI Asset Management's Innes. Rare earths offer it a "powerful tactical lever," but also a "weakening strategic one - the kind of hand that wins a round, not the war," he noted.

Innes pointed out that the U.S. and its allies have "quietly built escape routes" to ease reliance on China. MP Materials Corp. (MP) in California restarted mining and refining; Australia's Lynas Rare Earths Ltd. (LYSDY) is expanding separation and magnet operations into Texas; and lluka's Eneabba refinery in Western Australia is bringing heavy rare-earths capacity online.

"These are still small steps in tonnage, but giant strides in independence," Innes observed. China still controls around 70% to 80% of global rare-earths processing capacity, so that can still "make 2025 hurt" - but every new refinery outside China "dilutes that leverage," he said.

"In other words, Beijing's best card might be expiring even as it's played," said Innes.

Heading into the Trump-Xi meeting, "both leaders hold cards that play to their domestic narratives," he added.

"China's card is immediacy - the ability to inflict near-term disruption through export-control theater," Innes said. The U.S., meanwhile, holds the "longer hand - deep capital markets, technological autonomy and a widening coalition of supply-chain partners."

So "Beijing may win the net trade skirmish, but Washington is building the architecture to win the decade," he said.

Victor Reklaitis contributed.

-Myra P. Saefong

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10-17-25 1051ET