I hate to rub it in, particularly considering that, as an American, I’m on the wrong side of this, but China has a trump card in trade negotiations with Donald Trump. And they’re playing it. Hard.
The joke’s on Trump, sure. But in this case, that regrettably means the joke’s on me too. And on all Americans. And on the West more generally, where “West” is a geo-strategic, not a geographic, term — it includes, Japan, Australia and New Zealand just as much as it includes the US, the UK and Europe.
In “FULL MAGNETS,” I lampooned Trump for suggesting this week’s trade talks in London produced a durable agreement to keep the US supplied with rare earths, including magnets crucial for defense applications.
“China’s not going to change their policy on rare earth exports,” I wrote. “They’ll loosen up temporarily in areas where they think Trump’s watching, then go on about business as usual.” I was more right than I knew.
Just minutes after I published that linked article, The Wall Street Journal, citing the ubiquitous “people familiar with the matter,” said Beijing is indeed expediting licenses for rare earth exports as part of the agreement with Trump, but Xi’s “putting a six-month limit” on the permits to ensure Beijing “has leverage if trade tensions flare up again.”
So, if Trump accepts the deal (which he already called “done”), he’s doing so knowing full well there’s an expiration date on Xi’s promise to green light shipments of the tiny magnets at the heart of the dispute. Beijing tightened export restrictions on those components in April following Trump’s star-crossed “Liberation Day” unveil.
Among other things, China’s magnet restrictions demanded exporters ascertain the purpose of any foreign shipments, a process which entailed questioning customers abroad. As the Journal detailed in a separate article, Beijing went so far as to require some exporters to submit magnets for testing to verify they didn’t contain rare earth elements that would allow them to be diverted for military purposes.
Naturally, US customers will try to order as many magnets as they can while Xi’s in the mood to issue export licenses. That’s not lost on Beijing, which means the Party will probably take steps to ensure Chinese companies don’t ship enough of the magnets to diminish Xi’s leverage in the event Trump decides to re-escalate. (Which he invariably will.)
It’s not obvious, to this observer anyway, that China needs American chip technology, jet engines and student visas as much as American automakers and weapons manufacturers need those magnets.
China can and will build its own chips, engines and whatever else it needs. Maybe all that stuff will be inferior, maybe it won’t, but Huawei’s phones and DeepSeek’s AI model are a testament to the notion that the harder you try to prevent China from doing something, the more likely they are to do it. Necessity’s the mother of invention.
Some argue the rare earths threat is overstated, and considering that anyone qualified to opine on that particular subject knows more about it than I do, I’m not in a position to quibble. But it certainly looks to me like the magnet restrictions are what pulled the US back to the negotiating table this week.
From what little I know, there’s no hope of de-risking this particular supply chain entirely. As the Journal noted in the second linked article, American weapons contractors have managed to secure alternative supplies, but because “few military-grade magnets are completely free of Chinese rare earths,” Western weapons production is beholden, in part anyway, to Xi.
“the messer has become the messees”
– Chandler Bing
No doubt Republicans and other rightwing loudmouths will try to blame Biden and Obama for this strategic negotiating card we gave to China. But the accusers themselves are 90% responsible. When saner voices tried to marshal support for government assistance to the Mountain Pass Rare Earth Mine over ten years ago, the right-wing purists screamed against it. Often saying things like “We don’t pick winners. Don’t you remember Solyndra?”
The rightwingers won the day, allowing US capital to focus on more strategically important industries, such as electric scooter rentals and meal delivery services. This effectively left the market to the Chinese who skillfully manipulated market supply and pricing to stymie other nations from entering the market.
Do a web search on “Mountain Pass Rare Earth Mine” for a fuller history.
As to “Some argue the rare earths threat is overstated” they are partly correct. But only in terms of ore deposits, which actually are rather abundant across the globe. The commercial viability of many deposits are too low to merit refining. (I believe that the “valuable mineral deposits” Trump wants in Ukraine mostly fall into that category.)
However, this does NOT apply to refined products, such as those used to produce the magnets in question. For some strange reason people do not seem to welcome the construction and operation of REE ore refineries anywhere close to their homes. They have proven to be even less popular than even lead smelters. Whodathunkit?
The leading non-Chinese REE refineries are run by Australian companies in that country and in Malaysia (Lynas Corp). MP Materials in the US has a refinery well under construction in pollution-friendly Texas as does Lynas. The Biden administration helped finance both citing national security to justify the expenditures.
It’s about time though even when they are running, we will continue to need foreign ores and some finished products because the term Rare Earth Elements is plural and covers over ten of them which are not always present in all areas.
It’s not super-difficult to apply to the other powerful wild card we gave to China = encouraging the production of the most advanced logic chips solely on an island as close to the mainland as Cuba is to us. But we don’t pick winners, right?
Mountain Pass Rare Earth Mine
My inherently contrarian and half-Chinese eyes finally spy a blatant misstep on the part of Xi.
He is wasting his time signing the latest manifestation of The Arts of the Memorandum of Understanding and Letter of Intent, not to mention establishing time limits or detailed use restrictions on REE exports to the US. All Xi has to do is require that FULL MAGNETS only be exported to the US fully immersed in water, thus rendering them into silvery-white door stops that may serve as perfect complements alongside the gold ones with which everyone’s currently enthralled.
I’d give a lot to be a Chinese fly on the wall after the Lutnick-Navarro clown show featuring MC Auntie Bessent departs the wherever meeting or hangs up the phone …