China's long term planning has allowed it to acquire some serious advantages which it now uses to counter economic and other attacks on it.
The refining of rare earth metals and the production of magnets from them is only one of several advantages it gained. These metals are not really rare. They are usually byproducts of large extractions of other minerals. But their refinement was considered to be environmentally dirty. It is only profitable at a large scale. Over the last two decades China has managed to create a near monopoly in it.
Rare earth magnets, while small in size, end up in a myriad of products. They are cheap but essential and difficult to replace.
As soon as the Trump administration tried to put high tariffs on China the country hit back. The export of rare earth products were stopped until a licensing process had been put into place.
The products are now considered to be dual-use items. China will allow the export of them for civilian purposes but it denies their use for the production of weapons. It wants to prevent to be hit by U.S. missiles which have 'Made in China' labeled parts in them. It is difficult to blame it for that.
Today's Wall Street Journal has nice write up on the issue:
China Is Choking Supply of Critical Minerals to Western Defense Companies – WSJ via MSN
Earlier this year, as U.S.-China trade tensions soared, Beijing tightened the controls it places on the export of rare earths. While Beijing allowed them to start flowing after the Trump administration agreed in June to a series of trade concessions, China has maintained a lock on critical minerals for defense purposes. China supplies around 90% of the world’s rare earths and dominates the production of many other critical minerals.
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While companies have tried to find alternative sources of these minerals in recent years, some of the elements are so niche that they can’t be economically produced in the West, say industry executives.
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In addition to the more recent export controls on rare earths, China has since December banned sales to the U.S. of germanium, gallium and antimony—which are used for things like hardening lead bullets and projectiles, and to allow soldiers to see at night.
It is astonishing how many military products use these metals:
More than 80,000 parts that are used in Defense Department weapons systems are made with critical minerals now subject to Chinese export controls, according to data from defense software firm Govini. Nearly all of the supply chains for key critical minerals used by the Pentagon rely on at least one Chinese supplier, Govini said, meaning restrictions from Beijing can cause widespread disruptions.
Since stepping up export controls earlier this year, China has begun requiring companies to provide extensive documentation of how they will use the rare earths and magnets they import. Chinese regulators often demand sensitive information, such as product images and even photos of production lines, to ensure none of the materials go to military use, say Western buyers.
One Western company that supplies Chinese-made rare-earth magnets to both civilian and defense companies says its requests for imported magnets have recently been approved for many civilian purposes—but rejected or delayed for defense and aerospace.
Especially hit are drone makers who provide for the war in Ukraine. Light weigh drone motors need rare earth magnets to run.
There is little the U.S. can do to argue against China's licensing process. At least as long as magnets for civilian purposes continue to be sold:
China exported 352.8 metric tons of rare earth magnets to the US in June, according to data released by the GAC. Reuters reported that China's exports of rare earth magnets to the US in June soared to more than seven times their May level.
The corresponding value of rare earth magnets exports to the US was $16.08 million in June, compared with $2.42 million in May, data from the GAC showed.
In general, China's exports of rare earths to foreign countries expanded in June, maintaining a growth momentum from the previous month.
In June, China exported 7,742.2 metric tons of rare earths, according to the GAC, up 32 percent from the previous month and 60.3 percent from June 2024.
China's exports of rare earths in June climbed to the highest volume since 2009, Bloomberg reported on Monday, citing official data.
The U.S. weapon industry is now in a bit of a panic. China is hunting down smugglers who try to circumvent its prohibitions. Alternative sources are simply not there.
The Pentagon is countering China's move by financing new production lines in the U.S.:
The Department of Defense has awarded grants to expand production of niche materials, including $14 million in funding last year to a Canadian company to produce germanium substrates used in solar cells for defense satellites. In July, the Pentagon took an even bigger step when it agreed to pay $400 million for a stake in MP Materials, the operator of the largest rare-earths mine in the Americas, which is rapidly scaling up its magnet manufacturing capacity.
In the first quarter of 2025 MP Materials had a revenue of $61 million while incurring losses of $23 million.
As China has already captured the global civilian market for magnets it can produce at scale and with profits. The U.S. company will likely only have a very limited range of customers who will have to pay very high prices.
One wonders what other potential high impact intermediate products China has managed to silently monopolize.