Trump races to catch up to China’s rare earth dominance  

President Trump is racing to respond to a major escalation of the U.S.-China trade war, with the American supply of critical technology hanging in the balance. 

Trump administration officials announced plans this week to take a more active role in ensuring access to “rare earths” — minerals that are key components in several important technologies — in response to new Chinese export restrictions.

The new rules give China significant leverage in its trade war with the U.S. as both nations race to dominate the future of AI and the semiconductor chips essential to powering the technology. 

The U.S. and China have butted heads over tech exports and defense-related technologies for decades, and Beijing could ease or issue exemptions to the new rules to bring the temperature back down. 

But China’s latest actions, experts say, reflect an unprecedented willingness and ability to test the boundaries of its relationship with the U.S. at a dangerous time for the dynamic between the two nations. 

“We're just playing with fire here,” said Edward Alden, senior fellow at the Center for Foreign Relations. 

“We don't actually know what the potential consequences are. We may be able to keep this to a fairly small blaze, or it may really burn out of control with extraordinary consequences that are hard to forecast.” 

Months of progress toward a U.S.-China trade pact skidded to a halt last week when the Chinese government announced new, wide-ranging restrictions on rare earth minerals and related products.  

The restrictions require companies to seek licenses for products manufactured abroad that contain trace amounts of certain rare earth minerals from China or rely on Chinese rare earth mining technologies. 

It also announced new export controls on five additional rare earth minerals, as well as various rare earth and lithium battery related technologies. 

The move threatens to upend numerous high-tech industries that are dependent on the materials. 

These materials are essential for semiconductors, electric vehicles and U.S. F-35 fighter jets. China plays an outsized role in the sector, accounting for nearly 70 percent of the world’s rare earth mining as of 2024, according to Oxford Economics.  

Owen Tedford, a senior research analyst at Beacon Policy Advisors, suggested the Chinese government sees this as leverage that it can use to pressure Washington to roll back restrictions. 

“The Chinese see this as being a very powerful source of leverage, in large part because the supply chain outside of China is not well-developed, so there aren’t easy substitutes for the U.S. to go and increase their purchases from,” Tedford said.

Beijing has previously sought to flex its dominance over rare earths, imposing export restrictions on seven minerals in April, after the U.S. levied hefty new tariffs against China and dozens of other countries.  

While the minerals themselves can be widely found in trace amounts, deposits large enough to be economically viable to mine are hard to find. 

Even a partial disruption of supply chains would “echo across markets,” warned Louise Loo, head of Asia Economics at Oxford Economics, in a research note Tuesday. Such restrictions could cut U.S. growth by at least 1 percentage point over two years, she said. 

However, Loo noted this is a “lower-bound estimate” that “significantly underestimates the market impact of spiraling bilateral escalations.” 

China's move on rare earths prompted a sharp response from Trump, who threatened 100 percent tariffs and new export controls on “critical software.” The newly reignited tensions between the two superpowers, who previously appeared to be nearing a trade deal, sent markets reeling. 

The U.S. and China had already taken major steps to undercut each other’s AI and chipmaking capabilities. In recent years, Washington has increasingly expanded export controls on semiconductors. 

The Trump administration initially placed restrictions on Nvidia’s H20 chips before walking them back this summer, in a reversal that faced bipartisan backlash. Beijing has, in turn, taken steps to block Chinese companies from purchasing Nvidia’s chips, according to the Financial Times. 

While Trump struck a softer tone after the announcement — telling his Truth Social followers, “Don’t worry about China, it will all be fine” — the latest restrictions have a sparked a new push to shore up U.S. access to rare earth minerals. 

“When we get an announcement like this week with China on the rare earth, you realize we have to be self-sufficient, or we have to be sufficient with our allies,” Treasury Secretary Scott Bessent told CNBC on Wednesday.  

“When you are facing a non-market economy like China, then you have to exercise industrial policy,” he added.

The Trump administration has already been upending U.S. industrial policy in recent months by taking stakes in public companies — a policy Bessent indicated would continue.   

Trump approved a merger between U.S. Steel and Japan’s Nippon Steel in June, after the companies signed an agreement giving the government a “golden share.” In July, the Defense Department took about a 15 percent stake in the rare earth miner MP Materials. 

The administration also took a 10 percent stake in struggling U.S. chipmaker Intel in August and recently announced stakes in Canada-based mining firms Lithium Americas and Trilogy Metals. 

Bessent also said Wednesday the government plans to set price floors across a range of industries and will need to create a “strategic mineral reserve.” 

“What you’re seeing is this effort to build out a greater domestic and even, to use the Biden-era term, friend-shoring of these supply chains and develop alternatives to China,” Tedford said.  

However, he cautioned that building up supply chains like this can take time and that China is “uniquely positioned” given its geography, which boasts large rare earth reserves. 

China has nearly half of the world’s total reserves, some 44 million metric tons, according to the U.S. Geological Survey. The U.S., by contrast, has 1.9 million metric tons, or about 2 percent.   

Alden said that while the Trump administration could help inject more money into U.S. mining efforts, the U.S. “does not have a coherent strategy for acquiring self-sufficiency in rare earth materials.” 

“I think these steps are an admission of how far behind we are as a country in rolling out the sort of strategy you should have rolled out 10 or 15 years ago,” Alden said, describing the recent White House actions as “very haphazard.” 

Trump’s own volatility also could play a role in how strictly China enforces the new rules and how willing Beijing is to risk harsher U.S. retaliation. 

“I would be somewhat surprised if the restrictions didn’t take effect. But what I think you could see happen is that China gives assurances that the licenses for sales will be approved,” Tedford said. “So basically business as usual, but it becomes a very easy on-off switch for China to use in the event that they want to ramp up pressure.” 

Rachel Frazin contributed.