Washington tried to slow Chinese AI progress with export bans, a tactic Beijing later employed to regain some ground
Rare earths are needed for everything from consumer electronics to electric vehicles, wind turbines and fighter jets - and China controls the supply chain. In the third of a four-part series, we look at how Beijing's dominance in the critical minerals is matching up to Washington's lead in artificial intelligence, as well as how they are related.
When the US president unveiled his tariffs in April, China knew it had a trump card that had been quietly gaining in value over the decades and that no other country in the world held.
As the threatened tariffs rose, Beijing announced that it was imposing export controls on seven rare earth elements and magnets.
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Rare earths are essential components in many technologies, from consumer electronics and electric vehicles, through clean energy and aerospace, to medical and defence equipment. They are also used in research and development, including semiconductors.
China holds half of the world's reserves of rare earths and most of the global refining capacity.
And from 2020 to 2023, 70 per cent of rare earth compounds and metals imported by the United States were from China, according to the US Geological Survey.
By some US estimates, limits on access to these minerals could affect nearly 78 per cent of all Pentagon weapons systems.
The minerals have now become a central element of the US-China trade war, becoming leverage not only in reducing Washington's tariffs but also in challenging American efforts to maintain its dominance in another area of intense rivalry - artificial intelligence chip technology.
The US has been trying to slow China's AI progress by limiting its access to advanced chips since late 2022 - a strategy that has hindered broad adoption of the technology by Chinese enterprises, as a senior executive from tech giant Tencent acknowledged in May.
Without chips, China could find it hard to overcome the so-called scaling law in AI, a principle espoused by many developers that asserts the larger the training data and model parameters, the stronger the model's eventual intelligence.
Among the chips on the banned list are US manufacturer Nvidia's most advanced graphic processing units - products that can handle the highest demands of AI processing.
The rare earth ban forced the United States to the negotiating table.
By June, after marathon trade talks in London, US President Donald Trump said China had agreed to resume exports of rare earth elements and magnets to the United States.
Access to chips helped to break the deadlock, with US Commerce Secretary Howard Lutnick saying later that chips were included "in the trade deal with the magnets".
But it was not access to the US company's most advanced technology - the H100.
The US resumed sales of Nvidia's downgraded H20 chip to the Chinese market - a decision announced by CEO Jensen Huang last month during his third visit to China this year.
In Lutnick's words, the H20 was Nvidia's "fourth best" processor and "we want to keep China using it".
Analysts said the developments underscored the significance of rare earths in the US and China's geopolitical tug of war. Technological dependencies - on these materials as well as AI and scientific talent - would remain strategic choke points, they warned.
Analyst Evelyn Zhou Mengwei, who focuses on rare earths at London-based minerals research and pricing firm Benchmark Mineral Intelligence, noted that the response to China's export controls mirrored Beijing's reaction to being denied access to advanced chips.
"Since China dominates rare earth processing technology, especially for heavy rare earths, the export controls highlight the ex-China market's dependence, prompting governments to increase financial support for technology development," Zhou said.
"We have seen growing government investment announcements in processing and recycling projects. This situation is similar to [when] the US imposed export controls on semiconductors and AI - China accelerated efforts towards chip independence."
According to Kenny Evans, a fellow in science and technology policy at Rice University's Baker Institute for Public Policy in Texas, rare earths "are China's strongest leverage point".
"It is clear Trump wants to make a deal, but it is in Beijing's best interest to drag out negotiations, allowing China to continue to catch up technologically to the US in key areas, such as quantum, AI and advanced computing and communications."
It is a tug of war that could end in China's favour, especially as unease grows among the Chinese scientific community in the US about government policy more broadly.
Evans said the Trump administration's moves to revoke Chinese student visas and the House's push to revive the China Initiative had "created a climate of fear and deep uncertainty".
"There is already evidence of more students choosing to pursue degrees in their home countries and researchers leaving the US for more welcoming environments - which are gifts to Beijing's efforts to indigenise its national innovation ecosystem and outcompete the US in strategic technology sectors."
China's massive science and engineering talent pool - which historically has looked to the US for education and research careers - could also become another potential lever for Beijing to exert pressure on the US, according to Evans.
"If the US wants to cede scientific leadership to China, I can think of no better way than working to defund public research, to limit academic freedom, and to turn away scores of bright and ambitious students and scholars," he said.
Echoing Zhou, Evans also observed that the use of export controls as a policy lever to compete with China had "accelerated China's goal of indigenising its chipmaking production supply chain".
According to a commentary in May by the Information Technology and Innovation Foundation, a Washington-based think tank, "US export controls have accelerated China's efforts to close the gap".
Chips developed by tech giant Huawei were expected to match performance with Nvidia's advanced product at a lower cost, while Chinese companies were innovating differently as well as deploying less-efficient chips more effectively, the commentary said.
Last month, the White House released its first comprehensive strategy on AI, declaring that the US was "in a race to achieve global dominance" in the technology. "Whoever has the largest AI ecosystem will ... reap broad economic and military benefits," it said.
Under the plan, the US Commerce Department will take the lead in developing new export controls on chipmaking components to close "loopholes" in restrictions that now focus on major systems.
But a paper issued in December by the Centre for Emerging Technology and Security, part of The Alan Turing Institute in Britain, noted that chip restrictions had strengthened China's resolve for indigenous innovation.
US-led export controls explicitly targeting the Chinese chip industry had "further emboldened Beijing in its quest for self-sufficiency and dominance in numerous parts of the semiconductor supply chain", it said.
"China recognises that, to achieve its goals in domains such as AI, it must overcome a chip-deficient environment and quicken its drive for self-sufficiency across the semiconductor supply chain."
The US too is looking to be more self-sufficient.
Neha Mukherjee, rare earths research manager at Benchmark Mineral Intelligence, said there was "a bigger push [in the US] for diversification of resources" around rare earths compared to a decade ago.
"The [US] government is actively looking into this and viewing rare earth elements assets as strategic tools. Public funding is flowing into this space like never before," she said.
"The biggest testimony" to this was the July deal that made the Department of Defence the largest shareholder in MP Materials, which operates the only rare earths mine in the US, Mukherjee added.
Her colleague Zhou said that companies across the US, Europe, and the Asia-Pacific region had been "racing to secure and develop rare earth assets" since China banned the export of technology to make rare earth magnets in late 2023.
More than US$1.25 billion in capital investment announcements have been made globally since April, reflecting strong support for technological advancement, according to Zhou, who gave more details of the relevant Benchmark report in a post on LinkedIn.
Around 91 per cent of investments in mining, refining, magnet manufacturing and recycling of rare earths came from government-backed consortiums, with the US in the lead at US$570 million in total announcements, the post said.
"There has been a marked global surge in strategic consolidations, spanning acquisitions, mergers, joint ventures, and technology partnerships to speed up the development of the supply chain," Zhou said.
She pointed to Apple's commitment to buy US$500 million of "American-made rare earth magnets" from MP Materials. "Globally, efforts are under way to build and diversify more resilient and sustainable rare earth supply chains."
According to Rice University's Evans, finding alternative supplies of rare earths could be challenging. China emerged as the leader in rare earth element processing after decades of strategic focus, he said. "I doubt US export controls will do much to change that."
Without a trade deal in the short term, rare earths "could contribute to further decoupling in science and technology, especially if the Trump administration continues its aggressive posture on immigration and enforcement", Evans said.
"Longer term, I am concerned about the future of US-China collaboration in science, which is an incredibly important and productive partnership that has spurred countless new scientific discoveries and innovations."
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