Rare earths at center of US-China trade standoff

[WORLD] The U.S. and China’s fragile trade truce, agreed in Geneva to reduce tariffs, is under strain as tensions shift to export controls on critical minerals and semiconductor technology. U.S. President Donald Trump accused China of violating the agreement by delaying rare earth metal exports vital for defense and consumer tech, while Beijing retaliated by tightening access and criticizing U.S. restrictions on chip sales. Both nations are leveraging strategic resources—China controls nearly 70% of global rare earth production, while the U.S. dominates semiconductor design—but neither side has shown willingness to de-escalate, risking a return to punitive tariffs.

Efforts to resolve the impasse hinge on a potential call between Trump and Chinese leader Xi Jinping, though Beijing has yet to confirm dialogue. U.S. industries, including Ford Motor and defense contractors, already face shortages, while Asian allies like India and Japan warn of broader supply chain disruptions. Meanwhile, China’s opaque export permit system allows it to weaponize trade without overtly breaching agreements, creating a “supply-chain warfare” dynamic that complicates resolution.

Implications

For businesses, the standoff underscores vulnerabilities in global supply chains. Companies reliant on Chinese rare earths or U.S. chips face production delays, factory shutdowns, and rising costs. Diversification efforts, such as the U.S.-Saudi mining partnership or India’s push for domestic alternatives, remain years away from viability. Industries like electric vehicles and defense may need to stockpile materials or accept higher prices.

Consumers could see prolonged shortages and price hikes for electronics, clean energy products, and vehicles. For example, India’s Bajaj Auto warns of scooter production halts by July without Chinese components. Longer-term, reduced access to advanced chips may slow innovation in AI and consumer tech, particularly if China retaliates by restricting light rare earths used in everyday devices.

Public policy must prioritize reducing dependency on geopolitical rivals. The U.S. aims to build a self-sufficient rare earth supply chain by 2027 but faces technical and financial hurdles. China, meanwhile, may tighten export controls to pressure Washington, testing the limits of “decoupling.” Multilateral cooperation with allies like Australia and Japan will be critical, though competing interests could hinder unified action.

What we think

The U.S.-China tech war has entered a perilous new phase where export controls, not tariffs, are the primary weapon. Beijing’s rare earth leverage is more potent than widely acknowledged: Its controls inflict immediate pain on U.S. defense and tech sectors while minimizing domestic fallout. By contrast, America’s chip restrictions hurt Chinese firms like Huawei but accelerate Beijing’s push for self-reliance.

Washington’s focus on reshoring rare earth production is pragmatic but unrealistic in the short term. Even with Saudi and Australian partnerships, refining bottlenecks and a lack of skilled labor persist. China’s dominance here is structural, not accidental—a result of decades of strategic investment in mining and processing.

The risk of miscalculation is high. If Xi expands restrictions to light rare earths, U.S. consumer goods industries would face unprecedented disruption. Conversely, Trump’s threats to reimpose tariffs could reignite inflation fears ahead of the 2026 midterms. Neither side can “win” this conflict outright, but both seem trapped in a cycle of escalation.

Beijing’s calibrated approach—targeting defense sectors while avoiding consumer markets—suggests it seeks to pressure Washington without triggering a full trade war. Yet as India and Japan feel the ripple effects, the U.S. may struggle to maintain a united front among allies. The Geneva agreement’s collapse would signal a return to zero-sum economic competition, with lasting consequences for global stability.