Why China’s Rare-Earth Leverage Does Not Wear Out

The U.S.-China summit in Washington on September 24, 2026, once again failed to resolve the rare-earth issue. The fact sheet released by the White House after the meeting stated that the two countries “continue to work on U.S. concerns regarding supply chain shortages related to rare earths and other critical minerals, with the goal of ensuring shipment levels return to appropriate levels.”[1] Though nearly a year has passed since the U.S. and China reached a deal in the autumn of 2025, U.S. concerns over Chinese supplies remain unresolved.

Following their meeting in Beijing in May 2026 and this latest summit in Washington, the two leaders are scheduled to meet twice more before the end of the year—once on the sidelines of the APEC Leaders’ Meeting in China in November and again at the G20 Summit in the United States in December. This unusually intensive series of four in-person summits in a single year has been shaped by a new bargaining dynamic that emerged in the spring of 2025. Since China imposed export controls on rare earths, their supply has become an important card in U.S.-China negotiations. What makes this card distinctive is that it does not wear out after being used once: when the two sides agree to suspend new rules, China’s discretion over how its existing licensing rules are applied remains outside the agreement.

The Rare-Earth Card in Play Ahead of Export Controls

In response to tighter U.S. export controls on advanced semiconductors and other technologies, China has progressively tightened export controls on critical minerals such as gallium and germanium since 2023. After the second Trump administration took office, the card also came to be used in retaliation against tariffs. On February 4, 2025, when the United States imposed an additional 10 percent tariff on Chinese goods, China responded the same day by introducing export controls on five critical minerals, including tungsten and indium. Then, on April 4, two days after the administration announced its reciprocal tariffs on April 2, China unveiled a series of countermeasures, including export controls on seven medium and heavy rare earths—samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium.[2] As the United States escalated its tariff increases in response, exports of the controlled rare earths plunged. Supplies of materials essential to high-performance magnets, laser systems, ultra-light alloys, and other applications were disrupted, hitting supply chains across a broad range of advanced U.S. industries, including defense.

What is particularly noteworthy is that China’s exports of yttrium to the United States had already begun to fall sharply in February 2025, before the April export controls took effect.[3] This was not part of a general decline in Chinese exports: China’s yttrium exports to the world from January through April were actually higher than in the same period a year earlier.[4] At least in terms of actual supply flows, China’s rare-earth card was already in play before it was formally institutionalized in April. Against this backdrop, the U.S.-China talks in May brought a dramatic reduction in reciprocal tariffs, which had risen as high as 125 percent, to 34 percent. The additional 24 percentage points were suspended for 90 days, and the suspension has since been extended.

Mirroring U.S. Controls: A Mutual Stand-Down

The way the rare-earth card is used became even clearer during the U.S.-China negotiations in the autumn of 2025. On October 9, China announced new export-control measures on critical minerals with extraterritorial reach. Among other things, the measures required authorization for the re-export of products in which Chinese-origin rare earths accounted for 0.1 percent or more of value, as well as products manufactured abroad using Chinese processing technologies.[5] The control on foreign-made items produced with Chinese technology, in particular, mirrored the foreign direct product rule that the United States had used extensively in its October 2022 export controls on semiconductors to China.[6]

Just days earlier, at the end of September, the United States had introduced the so-called 50 Percent Rule, automatically extending restrictions on companies on the Entity List—the U.S. Commerce Department’s list of restricted entities—to affiliates in which they held an aggregate direct or indirect ownership interest of 50 percent or more.[7] The measure was intended to close off Chinese circumvention of U.S. export controls. On October 16, China’s Ministry of Commerce accused Washington of introducing 20 measures targeting China in just over 20 days following the Madrid talks (the U.S.-China economic and trade consultations held in Madrid on September 14–15), specifically singling out the 50 Percent Rule and demanding that it be corrected.[8]

The Trump administration reacted sharply. U.S. Trade Representative Jamieson Greer called China’s announcement “nothing more than a global supply chain power grab,” while Treasury Secretary Scott Bessent declared that “this is China versus the world,” adding that the move “should be a clear sign to our allies that we must work together.”[9] Yet at their summit in Busan, South Korea, at the end of that month, the two sides ultimately settled, agreeing among other things to suspend both the U.S. 50 Percent Rule and China’s October 9 export-control measures for one year.[10] In consultations ahead of the September 2026 summit, they agreed to extend this suspension until January 10, 2027.[11]

Same Deal, Different Readings

There is, however, a clear gap between the deal as announced by the U.S. government and the implementation measures China subsequently announced.

The U.S. government said that China would issue general licenses for exports of rare earths, gallium, germanium, antimony, and graphite, explaining that the general licenses meant “the de facto removal of controls China imposed since 2023.”[12] China subsequently suspended the additional October 9 measures and its December 2024 measures targeting the United States,[13] and did approve applications for general licenses,[14] but it maintained its pre-existing export licensing regime itself. In doing so, it kept in its own hands the means to adjust actual rare-earth flows at its discretion through individual licensing decisions, the speed of approvals, and the quantities permitted.

According to reports, U.S. negotiators have been unable to get China to put specific commitments on critical-minerals access in writing, leaving the deal open to interpretation and allowing China to claim it is adhering to the agreement even while violating its spirit. U.S. officials are also reported to believe that China has not fully honored the rare-earth agreement, though they are wary of openly retaliating, in fear that Beijing could cut off critical-mineral supplies altogether.[15]

A Discretionary Drip Feed

Rare-earth shortages in the U.S. aerospace and semiconductor industries have continued to worsen in 2026. Washington has repeatedly pressed Beijing to honor the commitments made at the October 2025 summit and to issue rare-earth export licenses without delay. Meanwhile, supplies have periodically resumed, only to stop again. U.S.-bound yttrium shipments, for example, increased slightly after the October 2025 summit but then fell again, and shortages had become acute by around February 2026. China reportedly shipped some 60 metric tons to the United States in March, none in May and June, and 29 tons in July.[16]

Nor have such supply constraints been confined to the United States. Supplies to Japan have been even tighter. After Prime Minister Sanae Takaichi’s remarks on a Taiwan contingency in November 2025, exports of terbium and some other rare earths to Japan ceased, while yttrium shipments fell to minimal levels from December.[17] From January through August 2026, China’s yttrium exports to Japan were down 98 percent year on year, while terbium exports fell to zero.[18]

In short, without resorting to a total embargo, China can partially restrict supply, stop it again after resuming it, and release it again as needed. Other policy tools, such as tariffs, can also be repeatedly imposed and suspended. In the case of rare earths, however, China can change the volume and pace of supply through the operation of its existing export licensing regime, without introducing new regulatory measures each time. The card can thus be played partially, reversibly, and repeatedly—and its use does not necessarily appear as an explicit policy change. This ability to raise and lower supply under existing rules, and to convert it into bargaining power again and again without taking new measures, is what makes rare earths a card that does not wear out.

Why America’s Card Wears Out

U.S. control over access to advanced technologies such as semiconductors and artificial intelligence is also a powerful card, rooted in the technological advantages built by U.S. companies and others. The two countries’ cards resemble each other in institutional form—both rest on licensing—but their effects differ in two respects. The first difference is the scale of the damage they inflict when used. China holds a near-monopoly in stages such as separation and refining, leaving its counterparts with few alternative sources in the short term. Moreover, because its control over critical-mineral supply extends across every layer of industry, from upstream materials to downstream products such as electric vehicles, robots, and defense equipment,[19] the damage spreads across the economy far more widely than that of U.S. technology controls aimed at advanced sectors, and cannot be offset by tariffs. The second difference is whether a card can be used repeatedly across agreements. This article focuses on this second aspect.

To be sure, the United States, too, can open and close the tap on supplies to China through the operation of its licensing system, just as China does. In May 2025, it imposed license requirements, through notifications to companies, on exports to China of semiconductor design software, ethane, and jet-engine-related technologies, among other items, only to lift them by early July as U.S.-China talks progressed.[20] In the autumn of 2026, it has reportedly been slowing license approvals for aircraft parts bound for China.[21] But a U.S. license suspension is quickly identified, through the media and Congress, as a government measure, so China can readily demand its removal, and Washington ends up offering it up as a visible concession when a deal is struck. It also directly costs American companies export opportunities, so the pain rebounds on the United States to a greater degree. To add new items to its controls, make them durable, and close off circumvention, the United States must keep adding published rules—but those rules, too, become subject to suspension in a deal. A card that can be played partially and reversibly, but whose use is clearly attributable to the government, is handed over as a concession in every deal, and playing it again requires taking a fresh measure.

In China, by contrast, the government has broad discretion over individual export licenses, the speed of approvals, and the quantities permitted, and Chinese companies wary of Beijing’s reaction may withhold exports even without an explicit order.[22] Such practices are easy to deny as “pending review” or as companies’ own decisions, and hard to call out as violations of an agreement.[23] Moreover, because it controls each stage of the supply chain, China is increasingly able to restrict supply in more selective and calculated ways—for example, by limiting the damage to itself while increasing the damage to its counterpart.[24] As long as what is suspended by agreement is limited to new rules, China’s card will remain in play through the operation of its existing regime.

Leverage Beyond Trade and Technology

China’s rare-earth leverage is not limited to deterring U.S. tariff increases or tighter controls on advanced technology.

In recent years, the U.S. Federal Communications Commission (FCC) has expanded its regulations on national security grounds, moving from excluding communications and surveillance equipment made by named Chinese companies toward excluding entire categories of connected devices from the U.S. market. It has successively added drones and their critical components (December 2025),[25] routers (March 2026),[26] and advanced robotics and power inverters (July 2026)[27] to its “Covered List,” in principle barring new equipment authorizations.

China has strongly objected to this expansion and has taken countermeasures, including restrictions on and investigations into U.S. companies and products. In August 2026, it went further, invoking countermeasures on the grounds that the FCC’s and other agencies’ measures violated “the important consensus reached by the two heads of state.”[28]

When the U.S. side later raised the rare-earth issue, Chinese officials reportedly countered that the FCC measures violated the agreement reached at the Busan summit.[29] This shows China linking the FCC issue, which was not part of the Busan arrangements, to rare-earth supply.

The potential influence of rare earths on other issues also extends beyond trade and technology. A proposed U.S. arms package for Taiwan worth some $14 billion has been put on hold ahead of the U.S.-China summit. Palmer Luckey, founder of the U.S. defense technology company Anduril, said that, based on his conversations on the issue with President Trump, Vice President JD Vance, and Secretary of State Marco Rubio, the administration was aware of the potential fallout from additional arms sales to Taiwan, including China’s possible use of its rare-earth leverage.[30]

Moreover, according to people familiar with the matter, China had sought ahead of the summit to have the United States not only halt new arms sales but also suspend deliveries of weapons Taiwan had already ordered.[31]

The power of the rare-earth card does not depend on its being explicitly traded for a concession. The very possibility that China might restrict supplies raises the cost of other U.S. policy choices, including arms sales to Taiwan. The existence of such a card may give China an incentive to press the United States with ever more far-reaching demands.

Playing the Long Game: Creating Trusted Markets

China’s discretionary operation of its controls is rooted in its domestic system and cannot be negotiated away.[32] The only way to neutralize this card is to break the monopoly on which it rests and overcome dependence on Chinese supply. Rare-earth resources are distributed beyond China, and China’s share of global reserves is estimated at just under 60 percent; yet it accounts for about 70 percent of mining and about 90 percent of separation and refining. Mining of medium and heavy rare earths, in particular, is extremely concentrated in China and Myanmar.[33] China’s dominance of rare-earth supply chains, built over more than three decades, cannot be undone overnight. Moreover, efforts to build alternative supply capacity outside China may be undermined not only by raw-material constraints but also by low-priced supply from Chinese firms that erodes the profitability of investment.[34] China has also developed a dense industrial ecosystem of materials, components, manufacturing equipment, and talent, which itself attracts new production capacity.[35] China’s supply-chain dominance thus has the power to obstruct the very formation of alternative supply chains.

Countries seeking to reduce dependence on Chinese supply need to accelerate the building of alternative supply chains, not only by developing rare-earth mining and refining capacity but also by aggregating demand from private-sector component makers and even producers of finished products to create alternative markets. At the same time, until alternative supply chains are in place, countries should urgently prepare for Chinese supply cuts by establishing arrangements that allow governments to understand private companies’ inventories and requirements and set priorities for the allocation of limited supplies.

(2026/10/19)