While it remains unlikely that China will place strict trade restrictions on the United States for rare earths or other critical minerals, China will almost certainly continue to strategically use its comparative advantage to promote broader industrial policy goals.

China holds a commanding market share of the global rare earth supply, more than OPEC ever held in the global oil market. Although China only possesses around 30 per cent of known exploitable reserves, it is confident that its monopoly will hold for at least a few more years due to its carefully constructed industrial policy. This prioritises not just getting the materials out of the ground, but also expertise in separating and processing them into usable elements.

These much more technical processes are what give China an advantage in rare earths and create an effective choke point in the otherwise internationally diversified supply chains. China’s dominance in rare earths is a result of deliberate policy, based in part on successful US policy in the post-war era that trained rare earth experts and created an academia–private sector pipeline.

While former Chinese leader Deng Xiaoping made his now-famous comment that the ‘mid-East has oil, and China has rare earths’ in 1992, the basis of Chinese rare earth dominance began when it opened two basic research institutes in 1952 and 1963. China has continued to invest heavily in research on rare earths and market applications, and its success in training the next generation of rare earth experts is evident in it being home to the only scientific journals fully dedicated to rare earth research and in the pace at which it trains new students.

With a clear advantage in the chain, from mine to consumer product, the threat of weaponising rare earths is compelling. At least in the short term, China would hold leverage over the production of a multitude of products, including electric car motors, satellites, guided missiles, MRI machines and more. Rare earths are one of the choke points in the global supply chain for high-tech goods, making them a point of vulnerability for supply chains in the United States, Japan and elsewhere.

Japan was an alleged victim of Chinese resource nationalism in 2010 following an incident near disputed islands in the East China Sea. Japanese firms reported that they were denied export permits at ports, something that Chinese authorities consistently denied. Japanese private companies and the Japanese state began assertive diversification strategies to relieve the choke point of the critical mineral supply chain. Even the perception of resource nationalism led to a change of behaviour that removed the sting of future economic coercion.

Unlike Japan, the United States does have domestic reserves of rare earth metals. The Mountain Pass Mine in California and other potential mines in Colorado and the Carolinas could supply the country with the minerals it needs in the event of a cut-off from China. Following the 2010 incident with Japan, Mountain Pass eventually reopened to try to ensure a domestic supply.

But given the low prices of Chinese rare earths, enabled through lax environmental regulations as well as expertise, Molycorp, the company operating the Mountain Pass mine, filed for bankruptcy in 2014. The new owners ship their output to China for separation and processing, where their key research and development facilities are also located. And Chinese rare earth company Shenghe Resources owns a minority share. The wealth of expertise, low prices and abundance of rare earth technology in China are incomparable. It is not about what is under the ground.

The United States continues to make efforts to diversify from China, including a new processing and separating facility in Texas funded by the US Department of Defense in joint venture with Australian rare earth company Lynas. This facility, initially announced in 2019 with private investors and still in development, could be a step towards an effective risk-management strategy.

But in any case, China is unlikely to weaponise its rare earth trade policy so bluntly. The case of Japan is again informative. Japan acted quickly in diversifying its supply chain through a combination of diplomacy with countries that had domestic supplies of rare earths, overseas joint ventures, encouraging recycling and alternatives and private trading companies securing non-Chinese sources, reducing its dependence by almost thirty per cent.

While the United States has been slower to respond, Chinese policymakers must know that using their rare earth supply as a trade threat would inflict a limited and short-term sting, and that China’s monopoly will not easily return once lost.

On the other hand, Chinese rare earth industrial policy — the strategic use of differential price controls, export quotas and investments in expertise — has been highly successful at attracting inward investment and at keeping investment in downstream rare earth technologies in China. These are precisely the kinds of industries and technologies pursued in President Xi Jinping’s Made in China 2025 plan and global economic leadership. The long-term advantages of the status quo in rare earths far outweigh the short-term benefits of using coercion in the US–China technology race.

Kristin Vekasi is Associate Professor in the Department of Political Science and School of Policy and International Affairs at the University of Maine.