In its high-stakes trade talks with the United States, China has been trying to strike a balance in how it wields its market clout. It controls the world’s supply of rare earth metals and magnets. And it has withheld supplies of the materials — crucial ingredients in everything from cars to fighter jets — as leverage.
At the same time, Beijing knows it must not overplay its hand by pushing Washington so hard that the United States feels compelled to make the long-term investments needed to break its dependence on China.
This delicate dynamic was underlined in an apparent compromise the countries reached on Tuesday in London.
Commerce Secretary Howard Lutnick said China’s negotiators had agreed to resume sending rare earths to American companies. The Chinese government did not confirm this.
But on Wednesday afternoon, the JL Mag Rare-Earth Company, a leading magnet producer in Ganzhou, China, said in a public disclosure that it had been issued licenses by China’s Ministry of Commerce for sales of nonmilitary magnet exports to the United States, Europe and Southeast Asia.
China has a long history of using government policy to control markets, periodically flooding countries with very low-priced Chinese supplies. That has driven many of China’s overseas rare earth competitors out of business.
“China is a major rare earth country with the largest amount of resources and the largest exports,” said Xiao Yaqing, a Chinese industrial policy leader, in 2021, when he was minister of industry and information technology. He denied that China limited sales of rare earths: “Some countries say that we restrict exports — most of what you buy comes from China.”
But by 2021, China already dominated the global market.
Jim Hedrick, a former rare earths specialist at the United States Geological Survey who is now the president of U.S. Critical Materials, a rare earths company, said it would take five years for the United States to break its dependence on China, even if a sustained effort started right away.
“China has had a 30-year head start in rare earth production,” he said.
Magnets made from rare earth metals are crucial for the manufacture of cars, offshore wind turbines, drones, missiles, fighter jets and many other advanced manufacturing products.
It was not clear on Wednesday that an agreement by China to restart sending rare earths and magnets to the United States would prove effective in getting American industry the supply it needs.
Magnet manufacturers need detailed international supply agreements and not just frameworks reached in principle, said Stanley Trout, a metallurgist at Metropolitan State University of Denver.
“We live and die by our specifications, which are detailed lists, so how does this agreement affect our ability to do business?” he said.
Another potential choke point China holds over its supplies of rare earths and magnets is a two-month-old licensing protocol for the exports. Over the last few days, however, China has issued export licenses for automakers and their parts suppliers, rare earth industry leaders said.
Gasoline-powered cars and sport utility vehicles use as many as 100 small rare earth magnets for the electric motors in the brakes, steering and other systems. Electric cars require additional rare earth magnets for the electric motors that turn the wheels.
But the licensing process has been cumbersome, industry leaders said, and it was unclear whether the agreement from London would resolve those difficulties. For example, Chinese producers of rare earths and magnets must submit documents specifying the end user of each shipment, and the end user is often required to provide further information on how it will use the shipment. The automakers, which are the end users, sometimes do not know exactly which supplier in their complex supply chains needs the rare earths.
Chinese companies took control of the global rare earth market in the 1990s. State-owned and illegal mines alike flooded world markets with low-priced supplies, which were mined and processed with almost no attempt to protect the environment.
International rare earth prices collapsed. The price of samarium, a rare earth essential for many military applications, fell more than 90 percent.
A Japanese-owned rare earth refinery in Malaysia that supplied Japan’s manufacturing sector closed in 1992. France shut its refinery in 1994, and the sole American mine and refinery, located at Mountain Pass, Calif., suspended operations in 1998.
In all three cases, pollution complaints from environmental activists led to what were initially supposed to be temporary closures for equipment improvements. But the facilities did not reopen because they could not compete profitably with China’s low-priced output.
During a territorial dispute between China and Japan in 2010 over control of a cluster of uninhabited islands north of Taiwan, China imposed a two-month embargo on shipments of rare earth elements to Japan, causing widespread distress among Japanese manufacturers.
At the start of that embargo, China’s Ministry of Commerce called in representatives from the two dozen private and state-owned companies in China with licenses to export rare earths. The ministry ordered them to stop shipments directly to Japan and to avoid making extra shipments to other countries that might resell supplies to Japan.
That embargo prompted Hillary Clinton, who was secretary of state, and members of Congress to call for sustained action by the West to reduce dependence on China. Investors and the U.S. government poured $1 billion into modernizing, expanding and reopening the American mine and refinery in Mountain Pass.
Shortly before the mine reopened in 2014, China’s Ministry of Commerce agreed to an American request in a World Trade Organization case that the country dismantle its limits on rare earth exports. Meanwhile, over the previous four years, a separate arm of China’s government, the Ministry of Industry and Information Technology, had nationalized many of the country’s rare earth mines and refineries.
With the ministry of industry’s support, Chinese companies flooded global markets with rare earths. Prices collapsed again, forcing the Mountain Pass operation to suspend operations again in 2015.
The Mountain Pass mine reopened in 2018 under new ownership and management, but for the next few years shipped its ore to China for processing. Only since late last year has the refinery at the site resumed processing a little more than half of the material it produces. The United States still has almost no magnet manufacturing capacity.
David Pierson and Li You contributed reporting and research.
Keith Bradsher is the Beijing bureau chief for The Times. He previously served as bureau chief in Shanghai, Hong Kong and Detroit and as a Washington correspondent. He has lived and reported in mainland China through the pandemic.
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