“In war, the way is to avoid what is strong, and strike at what is weak,” wrote Sun Tzu in his 5th century BCE military treatise, The Art of War.
More than 2,500 years may have passed since those words were written, but Chinese policymakers clearly haven’t forgotten this timeless wisdom. It was put into devastating effect last week when Beijing ramped up export restrictions on rare earth minerals and permanent magnets—arcane materials vital for myriad industrial processes and for which China enjoys a stranglehold on supply.
On Oct. 9, Beijing stated that foreign firms must now obtain Chinese government approval to export foreign-produced rare earth magnets and semiconductor materials that contain 0.1% or more Chinese rare earth materials—or produced using Chinese mining, processing, or magnet-making technologies. Export to U.S. defense industries, meanwhile, has been effectively banned starting from Dec. 1.
As China accounts for some 70% of rare earth mining, 90% of processing, and 93% of magnet manufacturing, it strikes at the heart of U.S. strategic vulnerability with profound national security implications—not to mention for American semiconductors, jet engines, EV batteries, and military weaponry.
“It’s an unprecedented move. We’ve never had mineral restrictions at this level and particularly ones targeted at our defense industry,” says Gracelin Baskaran, director of the Critical Minerals Security Program at the Center for Strategic and International Studies. “China’s weaponization of rare earths has backed us into a very tight corner when it comes to our own national security.”
It’s a move that analysts believe was timed to gain leverage before a scheduled meeting between U.S. President Donald Trump and his Chinese counterpart, Xi Jinping, on the sidelines of the APEC summit in South Korea later this month. In response, Trump announced new 100% tariffs on Chinese goods starting next month on top of the 30% already in place, as well as controls on “any and all critical software.”
On Sunday, China said that the tariff threat wouldn’t force a climbdown, though it would welcome negotiations. “China’s stance is consistent,” its Commerce Ministry said in a statement. “We do not want a tariff war, but we are not afraid of one.”
Crucially, China turned the tables by mirroring U.S. export restrictions that for years have been used to strangle its tech industry. The U.S. foreign direct product rule (FDPR) dates from 1959 when the Eisenhower Administration decreed it had the jurisdiction to stop the sale of anything produced using U.S. technologies even if traded by foreign entities.
What was originally intended as a Cold War tool to prevent the Soviet bloc benefiting from American intellectual property had a new lease of life in August 2020, when Washington wielded it to prevent the Chinese telecom behemoth Huawei from gaining access to chips made using American tools. The new Chinese rare earth regulations are borrowed directly from that playbook.
So, what is on the table in South Korea? Firstly, China will want some reprieve from the tariffs that are undermining its export-reliant economy. China is dealing with entrenched deflation, record youth unemployment, and a real estate market that has halved in just four years. What Beijing desperately wants is a semblance of tariff stability so, at the very least, it knows what its factories can produce and sell on a consistent basis. (Trump’s tariffs on various China goods have bounced between 10% and 245% since he came into office.)
In addition, the detail of the rare earth export controls makes it no secret that China wants access to the advanced semiconductor chips that the U.S. has blocked it from acquiring. Rare earths are vital for chip assembly and the new regulations pointedly state that government export licenses are now required for any rare earths used in semiconductor manufacturing or testing equipment, including sub-14-nanometer chips, or high-spec memory chips.
By restricting U.S. access to the materials necessary to make the chips that Washington refuses to sell to China, Beijing is essentially reasserting its sovereignty over an upstream portion of the supply chain. “What this really highlights is how integrated the two economies are,” says Baskaran. “That when you take out semiconductors, magnets, or minerals, the supply chain collapses.”
The question is whether China’s new export restrictions are simply retaliatory or represent a tectonic shift in trade policy. China has never been shy about weaponizing trade—as Australia, Norway, South Korea, and many others can attest—though previous restrictions have typically been targeted retaliation for perceived affronts.
Whether export restrictions become an umbrella policy wielded to maintain strategic advantage remains to be seen, though Beijing has long telegraphed such a tactic. In April 2020, Xi told the CCP Central Financial and Economic Affairs Commission in a speech that “We must … consolidate and enhance the international leading positions of our advantageous industries … [to] tighten the international industrial chain’s dependence on China, and form a strong capacity to counter and deter deliberate supply cutoffs by external parties.”
Notably, alongside the new rare earth restrictions China also unveiled incredibly broad export curbs on lithium and especially the components of EV batteries—including battery packs, cells, cathodes, the lower value anodes, as well as production equipment such as mills, furnaces, and air grinders, which are pretty commonly available. “It does seem that China is taking a more offensive stance with this latest move,” Andrew Polk, co-founder of Trivium China, told the strategic business advisory’s podcast.
Analysts suspect that China is poised to include even more items in its export restrictions soon, with a slew of minerals like magnesium, titanium, or cobalt possibly weaponized. On top of earlier bans on the export of rare earth mining technology, Beijing last week also blocked any Chinese national from working for overseas rare earth facilities to guard against intellectual property transfer.
The race is now on for the U.S. to turn its critical mineral weakness into a strength immune from pressure. Bringing new mining facilities online on home soil and in friendly nations is a national security priority. Still, the average wait for a mine to go from discovery to production in the U.S. is 29 years—second-slowest in the world behind only Zambia—and there is always a chance that community groups or other stakeholders can file legal objections.
In March, Trump signed an executive order mandating agencies to fast‑track mineral production permits and open federal lands to mining, and the White House also published a list of ten domestic projects to receive expedited permits. In July, the Pentagon also struck an unprecedented deal to buy a $400 million stock in rare earth company MP Materials, while guaranteeing a ten-year floor price of double prevailing market levels for the strategically crucial rare earth magnet neodymium-praseodymium.
Last week, Noveon Magnetics, the only U.S. manufacturer of rare earth magnets, announced a memorandum of understanding with Australia’s Lynas Rare Earths to establish a strategic partnership focused on building a scalable, domestic supply chain for rare earth permanent magnets.
Ramping up domestic production would be “a good signal to China that we have capabilities and can exercise them,” says Mark Smith, CEO of rare earth firm NioCorp, which is building a processing facility at its Elk Creek Mine in Nebraska that he hopes will be operational within two years. “Things are very serious, they are not headed in a good direction right now, and there is one answer here: establish supply chains outside of China.”
Even then, China’s processing power and economies of scale mean that it holds a significant price advantage on the open marketplace. But while China is clearly superior at refining, the U.S. could lean into its own operational advantage to reduce cost: exploration. At present, every major mine that goes into operation in the West involves around $750,000 in exploration costs—and so streamlining this cost sink could go a long way to reducing overall expenditure.
“China is ahead on processing but not the most innovative for exploration,” says Ted Feldmann, founder and CEO of California-based Durin, which created the world’s first automated drill rod to slash exploration costs. “That is how we win here—by focusing on the technology to find the next generation deposits.”
Until that happens, though, China has a rare earths wild card that it knows can hurt the U.S.—and Xi won’t shy away from flaunting it in talks. In May, Ford’s Chicago plant temporarily halted production of its Explorer model due to a shortage of rare earth magnets. China squeezing rare earth supplies has already forced the U.S. to the negotiating table twice—in London and Geneva—to come to an accommodation.
It sets the stage for a momentous meeting in South Korea: Xi demanding access to U.S. technology and markets; U.S. for the minerals that keep its industrial base ticking. Any delay for a resolution will harm both sides, which invokes yet another Sun Tzu truism: “There is no instance of a country having benefited from prolonged warfare.”
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