BRUSSELS — As Beijing asserts itself amid global trade tensions, it is playing an ace it has kept up its sleeve for decades: control over the flow of minerals Western countries desperately need to fuel their green, digital and defense ambitions. 

When U.S. President Donald Trump last week hailed a draft “framework” with Beijing to end their trade dispute, he singled out China’s export controls on seven rare earth elements — minerals deemed “critical” because they are used in the production of high-tech products such as magnets used in cars.

“Our deal with China is done, subject to final approval with [Chinese] President Xi and me,” Trump wrote in a post on Truth Social. “Full magnets, and any necessary rare earths, will be supplied, up front, by China.”

In return, the U.S. agreed to drop plans to revoke Chinese student visas. But the situation remains tense — at the G7 summit in Canada, European Commission President Ursula von der Leyen accused China of “weaponizing” its leading position in producing and refining critical raw materials.

At the summit, Western leaders were expected to pledge to implement a “G7 critical minerals action plan.” But their draft statement didn’t name-check China, instead obliquely mentioning “non-market policies and practices in the critical minerals sector.”

“China has the upper hand in the short term,” said Philip Andrews-Speed, senior research fellow at the Oxford Institute for Energy Studies. Beijing’s export controls are “much more powerful than a tariff that Trump is putting on,” he added. 

Those controls — initially imposed in April and framed as a response to Trump’s tariffs — sparked outrage and alarm among industry bosses and officials in the U.S. and across the EU. They apply to all countries, requiring companies to be granted a license for each shipment. 

Trade Commissioner Maroš Šefčovič earlier this month called the situation “alarming” for the European car industry as well as for industry more broadly. “Rare earths and permanent magnets are absolutely essential for industrial production,” he argued, with the magnets an essential component in everything from smartphones, TVs and computers to car and wind turbine engines and defense applications. 

Decades in the making

It’s a gambit Beijing has skillfully crafted for decades — and one that projected market developments are only set to buttress.

China has a virtual monopoly in the sector, dominating the entire supply chain from the extraction of rare earths to their processing and the manufacture of permanent magnets. 

According to the International Energy Agency, the country accounts for some 61 percent of rare earths extraction and 92 percent of refining. Moreover, it provides nearly 99 percent of the EU’s supply of the 17 rare earths, as well as about 98 percent of its rare earth permanent magnets. Global demand for these minerals is expected to increase by 50 to 60 percent by 2040.

“Over the last few years, China has managed to build up this kind of defence system,” said a person from the Chinese business sector, granted anonymity to speak candidly. That gives Beijing “confidence” on the international stage, they added.

Back in 1987, when the U.S. still dominated mining and the metals and minerals were of far less — and certainly not “critical” — importance, then-ruler Deng Xiaoping said: “The Middle East has oil, China has rare earths.” Deng, China’s most important figure from the late 1970s until his death, was at the time touring Baotou in the interior of Mongolia, China’s rare earth center. 

Since then, Beijing has heavily invested in growing its monopoly and capitalizing on it. 

In 2020 it overhauled its export control regime, passing an Export Control Law that largely emulates U.S. legislation. Four years later it took another step in building a domestic legal foundation by introducing export control regulations for so-called dual-use items that can be used for military and civilian purposes.

It has also shown it doesn’t shy away from using these tools. In 2010 China briefly restricted rare earth exports to Japan; more recently it has imposed export restrictions on gallium, germanium and antimony (which are also deemed critical minerals) and banned the export of rare earth processing equipment. 

While the person from the Chinese business sector quoted above argued that the export control system is a “tit-for-tat measure for the U.S.,” Beijing decided — in its latest move — to target all countries rather than just the U.S. That’s also leaving a mark on European industry.

“All export licenses now have to be re-approved and there has been a temporary de facto export ban, meaning we are experiencing a backlog in the approval of new export licenses, which is still affecting supply chains today,” said Stefan Steinicke, a raw materials expert at the Federation of German Industries, a business lobby group.

The controls not only give the Middle Kingdom more leverage in trade talks with the EU by sending a warning to Brussels not to team up with Washington — they also afford it valuable insight into rare earth supply chains. Earlier this month Beijing agreed to set up a “green channel” for European companies to speed up the approval of licenses.

Catch me if you can

In response, industry bodies are pushing for the EU to accelerate its own efforts to diversify supply away from China, alongside pursuing diplomatic efforts.

James Watson, director general at metals lobby Eurometaux, called on Brussels to “continue to invest in international cooperation,” to “support recycling efforts and the circular economy in the EU,” and to push “domestic production of certain metals in the EU.”

But as keen as the EU is to play catch-up and slash its dependence on China for the minerals — as recently exemplified by its designation of several rare earth extraction and processing projects within and outside the bloc as “strategic” — it faces a mammoth task. 

Rare earths aren’t as rare to find as their name suggests — they are, however, difficult to extract and refine in economically viable quantities, with all of the biggest reserves found outside the bloc’s borders. 

“The outlook for substantially denting China’s dominance in the next years is pretty grim,” said Andrews-Speed, the Oxford researcher. “Twenty, 30 years ahead, anything can happen with technology and trade.” 

With more minerals set to be used as levers in the future, China’s chokehold on rare earth minerals is only the beginning. 

Its sway over rare earths is an “extreme case,” but China also dominates a vast array of other minerals such as lithium and cobalt and is “increasingly moving … downstream in the value chain,” said Edoardo Righetti, a researcher in the energy, resources and climate change unit at the Centre for European Policy Studies think tank. 

Giorgio Leali and Koen Verhelst contributed to this report from Kananaskis, Canada.

This story has been updated.