Donald Trump recently announced a new Rare Earth Element (REE) deal with China. As per the deal, China is set to lift its export controls on any REEs exported to the United States in exchange for exemptions granted to Chinese students amidst the president’s crackdown on immigrant student visas.
Trump portrays this agreement as a significant win for his administration. The EV industry, which is dependent on rare-earth magnets, is also jubilant. However, the reality is more nuanced. The deal only provides a six-month license to US companies, after which China could reinstitute the controls if US-China relations do not improve. With a newly institutionalised export control regime, China is prepared to use its rare earth dominance for strategic gains again in the near future. There is, for instance, no such deal with India on the horizon, and Indian automotive companies continue to rely entirely on rare earth magnet supplies from China, which remain blocked. We thus argue that policymakers—particularly in the US, EU, and India—should look beyond short-term deals and accelerate efforts towards diversification.
Anatomy of China’s dominance
China’s primary advantage does not stem from exclusive dominance over natural reserves or possession of superior mining capabilities; rather, it lies in refining and processing. China controls approximately 90% of the global rare earth element (REE) refining industry. This dominance did not arise from advanced technological prowess but through government subsidies paired with predatory pricing practices. Take the Bayan Obo mine in Inner Mongolia, which is responsible for roughly 45% of global REE output on its own. In the early 2000s, subsidies on electricity, rail freight, and land-use fees at Bayan Obo shaved operating costs by up to $15 per kilogram compared with Australian peers. Beijing’s export quota regime, introduced in 1999, then ensured domestic refiners had first claim on cheap concentrate, which resulted in a fully integrated on-shore supply chain that no foreign competitor could match. Environmental compliance costs, meanwhile, remained minimal for Chinese firms because wastewater-treatment standards were loosely enforced. Estimates are that Chinese refiners spent only a fraction of what their international counterparts paid on effluent control. The result was that by the time overseas miners ramped up production in the late 2000s, China could undercut them by 30–40% on finished oxides.
Many countries attempted to diversify away from China; however, their efforts failed because whenever international suppliers sought to expand their operations, Chinese firms would flood the market with subsidised REEs at artificially low prices, driving foreign competitors out of business or forcing them into acquisitions by Chinese firms. This reversion to dumping rare earths was possible because China’s previous export restrictions lacked official status, were country-specific, and tended to be short-lived.
The recent controls, however, differ significantly. China officially declared these export controls, structuring them explicitly as retaliatory measures, thereby giving them a degree of permanence. The establishment of a formal bureaucratic structure to decide permits further signals China’s recognition of REEs as a tool it intends to use in the future.
The new agreement
The semi-permanent nature of the recently established export controls creates a promising window for global diversification initiatives. Countries will be forced to develop alternatives, encouraged by the clarity of China’s stance and a resultant increase in prices, which would make these alternatives economically viable.
