China and the 'Rare Earth Card': Strategic Advantage or Double-Edged Sword Against the U.S.?

As tensions between the United States and China deepen, Beijing continues to blend economic might with geopolitical strategy, turning its control over rare earth elements into a powerful diplomatic bargaining chip. Yet analysts caution that while this move gives China short-term leverage, it could ultimately backfire — transforming a strategic asset into a long-term liability.

1. From “Trade War” to “Rare Earth Weapon”

According to reports from CNA and Reuters, China has entered a new phase in its rivalry with Washington — one that goes beyond tariffs and trade barriers. Unlike the 2018 trade war during Donald Trump’s first term, Beijing has now fortified its economic foundations and identified key “strategic levers” to strengthen its negotiating position.

Ahead of the Xi-Trump meeting in Seoul last week, China announced sweeping export controls on rare earth elements — critical materials used in everything from electric vehicles and wind turbines to defense technologies.

The move sent shockwaves through global markets. Within days, prices for metals such as neodymium and dysprosium — essential for electric motors — surged sharply. Tensions later eased as both sides reached a temporary trade truce: Washington agreed to roll back part of its tariffs, while Beijing postponed its export restrictions for 12 months.

2. Strategic Leverage — and Its Limits

According to Kevin Chen, researcher at Nanyang Technological University in Singapore, China’s latest move reflects a keen understanding of Trump’s dealmaking style — prioritizing immediate economic outcomes over long-term strategy.

But overreliance on this “rare earth weapon,” Chen warns, risks undermining China’s flexibility in future negotiations.

Currently, China controls around 60–70% of global rare earth production and nearly 90% of global refining capacity, particularly in Inner Mongolia, Jiangxi, and Sichuan. This dominance gives Beijing tremendous leverage — but also exposes it to geopolitical backlash.

Tobias Hekster, co-chief investment officer at True Partner Capital, noted:

“China is playing a long game. But the more it uses rare earths as a coercive tool, the more incentive the rest of the world has to break free from its supply chain.”

3. Ripple Effects: From Washington to Canberra

Beijing’s “maximum pressure” strategy has already spurred swift countermeasures. The United States recently signed an $8.5 billion agreement with Australia to boost exploration and refining of strategic minerals, while also investing in rare earth recycling technologies.

Across Asia, Japan, Malaysia, and Thailand are advancing joint projects to reduce dependency on Chinese materials. Meanwhile, the European Union has passed the Critical Raw Materials Act, aiming to source 30% of its rare earth supply domestically by 2030.

In a symbolic move, the Netherlands nationalized chipmaker Nexperia, previously owned by a Chinese company, citing security concerns. Analysts viewed this as a direct response to fears that China could “weaponize” its control over key supply chains.

4. The Double-Edged Nature of “Maximum Pressure”

Using rare earths as a bargaining tool may help Beijing secure short-term trade concessions, but it also erodes trust and accelerates global diversification efforts.

David Wagner, head of equities at Aptus Capital Advisors, explained:

“Every time China tightens export controls, Western countries double down on mining and refining investments. It’s a self-defeating strategy over the long run.”

Moreover, China risks disrupting its own domestic industries — including electric vehicles and semiconductor manufacturing — which also depend on a steady flow of rare earth materials. In essence, by squeezing supply, Beijing could inadvertently hurt the very sectors it aims to protect.

5. An Endless Tug of War

The rare earths dispute is only one front in a broader geopolitical rivalry. Beyond minerals, China has wielded other levers of influence — from TikTok negotiations and agricultural purchases to selective investment deals.

Each time Washington ramps up export bans or sanctions, Beijing counters with new restrictions on strategic resources. The result is a cycle of retaliation, heightening the risk of miscalculation and escalation.

A senior Asian diplomat told the Financial Times:

“When both sides apply maximum pressure simultaneously, even a small misstep could spiral into a major breakdown of trust.”

Consequently, the economic “decoupling” between the world’s two largest economies — a process that began during Trump’s first term — is now accelerating. Multinational corporations are relocating supply chains out of China, while Beijing pushes for technological self-sufficiency, reshaping global trade dynamics for years to come.

6. The Long Game: Power, Trust, and the Limits of Resource Leverage

For now, rare earths remain one of China’s strongest strategic cards. Yet as Bloomberg Economics notes, resource-based power is effective only when used sparingly. Overuse risks triggering precisely what Beijing seeks to avoid: a coordinated global effort to bypass its dominance.

Experts estimate it will take five to seven years to establish a fully independent rare earth supply chain outside China — but that process is already underway. Every new restriction or export ban shortens that timeline.

Victor Zhang, Chief Investment Officer at American Century Investments, summed it up succinctly:

“China may win a few tactical battles, but in the long game, true power lies in balancing strength with trust.”

FAQs

1. What are rare earths, and why is China so dominant?
Rare earths are 17 metallic elements essential for advanced technologies — from EVs and wind turbines to semiconductors and defense systems. China accounts for over 60% of global output and nearly 90% of refining capacity.

2. Why is China using rare earths as a strategic weapon?
Beijing sees its control over rare earths as leverage in negotiations with Washington, especially amid U.S. restrictions on high-tech exports.

3. How are other countries responding?
The U.S., Australia, Japan, and the EU are investing heavily in alternative mining, refining, and recycling projects to reduce reliance on China within the next decade.

4. Can China maintain its dominance long-term?
Unlikely. If it continues using export bans as political leverage, global diversification efforts will accelerate, weakening its strategic advantage.