(TNND) — Access to rare earth minerals and the products made from them is playing a key role in the latest trade tensions between the U.S. and China.
China announced stricter export controls on the rare earth market it dominates.
And President Donald Trump countered by announcing an additional 100% tariff on Chinese imports.
China mines about 70% of the rare earth minerals and is responsible for about 90% or more of the separation, processing and magnet manufacturing that has to take place for the ore that is dug from the ground to be used in numerous consumer and military products.
But it’s not so easy for the U.S. to wean itself off Chinese rare earths.
“We’re shifting a lot of attention now to tariffs and mining,” said Tom LaTourrette, a senior physical scientist at RAND with over 25 years of experience in critical mineral supply chains. “So, tariffs … to prevent us from buying things from China and mining to get us to produce things here in the U.S. Those make sense, but so did grants, loans, production tax credits, which the administration is cutting right now.”
LaTourrette said the U.S. needs both demand-side and supply-side policies if it’s to adequately address its dependence on Chinese rare earths.
Another RAND expert, Fabian Villalobos, said China uses its dominant position in rare earth minerals and processing as leverage on the international stage.
The current trade negotiations with the U.S. are no different.
He and colleagues wrote in 2022 that if it desired, China could effectively cut off 40% to 50% of the global rare earth oxide supply.
The rare earths market is much larger than just what’s dug from the ground.
There is a series of intermediate products, from concentrates to rare earth oxides.
Rare earth oxides are then metallized, perhaps put into different alloys.
Finally, the alloys are used in magnets, which are often used in electric motors or actuators.
China became dominant in rare earths in the 1990s and 2000s.
LaTourrette said the U.S. dominated production before that.
But Villalobos, a senior engineer, said Chinese industrial policies targeted the development of rare earths.
And the state-controlled economy of China saw a huge expansion of production capacity.
At the same time, a two-tier price system developed so that firms were incentivized to move manufacturing to China for access to cheaper rare earths.
And the U.S. fell behind with policymakers taking a hands-off approach, viewing rare earths as an issue for the free markets to sort out, Villalobos said.
“The U.S. assumed that there was fair market competition taking place,” he said.
But there wasn’t, he said.
China was stacking the deck to bolster its domestic production.
Both Villalobos and LaTourrette said the U.S. can mine rare earth minerals.
But the real difficulty lies in separating and processing the minerals into something used by manufacturers.
“They are blessed with fantastic deposits in China, but in general they don’t have a tremendous amount of natural resources,” LaTourrette said. “They import the ores from around the world, and they’ve really made their mark through setting up processing and refining capacity.”
He said that has allowed China to control the market with a larger and more diversified customer base.
“The customers for ore are just the refiners, whereas the customers for the refined products are all sorts of things,” LaTourrette said.
If the U.S. wants to insulate itself from rare earth disruptions from China, America needs to focus on the processing challenges just as much as the mining challenges, LaTourrette said.
LaTourrette said the Trump administration is focused on bolstering domestic supply chains.
But he said that might be unnecessarily narrow, as diversifying foreign access to rare earth mining and processing with “pretty much anybody else” other than China should also pay big dividends.
“The more players involved, the better,” LaTourrette said.
Still, creating new production capacity or tapping into new sources takes time, he said.
And LaTourrette said the U.S. government has typically been risk-averse to the type of investing in enterprise that’s been key to China’s approach with rare earths.
The U.S. might also find it hard to play catch-up, given the head start China has gotten on rare earth expertise.
“I think one of the things we’re going to learn is it’s not just a question of dollars,” LaTourrette said. “There is learning and experience and skill that, just like in batteries, all the money in the world is not going to teach us how to make batteries as well as China does. It takes time. And they’ve been at it for so long. And I think … the same thing holds for rare earths and the magnets.”
