The Rundown - Deep Dive: How China Turned Rare Earth Minerals Into a Trade Weapon

Episode Date: April 20, 2025

China just pulled one of its most powerful levers in the trade war: restricting exports of rare earth minerals. These materials are cheap by dollar value but essential to everything from EVs and smartphones to missile systems. In this episode, we break down how China came to dominate the rare earth supply chain, what happened when they weaponized it before, and why the U.S. is scrambling to catch up. It’s a story of economic dependence, national security risk, and a mineral market that’s anything but rare.The content of the video is for general and informational purposes only. All views presented in this show reflect the opinions of the guest and the host. You should not take a mention of any asset, be it cryptocurrency or a publicly traded security as a recommendation to buy, sell or hold that cryptocurrency or security. Guests and hosts are not affiliated with or endorsed by Public Holdings or its subsidiaries. You should make your own financial and investment decisions or consult respective professionals. Full disclosures are in the channel description. Learn more at Public.com/disclosures.Past performance is not a guarantee of future results. There is a possibility of loss with any investment. Historical or hypothetical performance results, if mentioned, are presented for illustrative purposes only. Do not infer or assume that any securities, sectors or markets described in the videos were or will be profitable. Any statements of future expectations and other forward-looking statements are strictly based on the current views, opinion, or assumptions of the person presenting them, and should not be taken as an indicator of performance nor should be relied upon as an investment advice.

Welcome back to another weekend deep dive. Today, we're talking about some rocks. And no, we haven't become a niche geology podcast. This week, rare earth metals became the latest chess piece in the growing trade war between China and the U.S. China recently announced export restrictions of rare earth materials, and this is sending alarm bells across the U.S. economy. So in today's episode, we're going to look into why these rare earth materials are so

important and how China came to dominate the supply of these rocks and what the U.S. is doing to fight back. We got a great show for you today. Let's dive in. So unless you've been living under a rock these days, you know the U.S. and China are in the middle of a full-blown trade war. We're talking triple-digit tariffs, export restrictions, and a lot of passive aggressive comments to the media. Well, this past week, China just played a serious Trump card. No pun intended. China announced export restrictions on six heavy rare earth metals, which are refined entirely in China, as well as rare earth magnets. That means the U.S. just got cut off from a crucial supply of elements that powers everything from EVs to missiles, and yes, even my precious Dyson vacuum.

Now, on the surface, if you look at the numbers, on an annual basis, the U.S. only imports about $170 million worth of rare earth from China. That's a very small percentage of the trade between the two countries. But it's not about the money here. It's about the function. These minerals are tiny ingredients that power trillion dollar industries from tech to cars to weapons. So without these rare earth metals, supply chains for EVs and wind turbines and smartphones and precision missiles, all of it, it starts to break down. And the problem is the U.S. is really dependent on China for these metals.

From 2020 to 2023, the U.S. imported 70% of its rare earths from China. Second place was Malaysia at just 13% and then Japan at just 6%. And what's even more staggering and concerning is that China produces 90% of the world's rare earth magnets. So that's why these export restrictions from China is sending shockwaves to the U.S. government, the defense sector, and many other industries that are dependent on these metals. But that begs the question, how did China come to dominate the supply of these rare earth metals if they're so crucial for every industry? Well, it comes down to some strategic moves by the Chinese government 25 years ago. So how did China become the major supplier for rare earths to everyone in the world? Well, part of it is geology.

You know, they have rich reserves in the country. But honestly, a lot of countries have reserves of rare earth metals, including here in the U.S. In fact, contrary to the name, rare earth metals aren't that rare. But the problem comes down to extracting these metals and refining them. That's a pain, and it's also not great for the local environment. China has been willing to do this for decades now, and they also made a strategic decision back in the 90s that solidified their position as the world's supplier of these metals. See, back in the 90s and early 2000s, China made a move to corner the market by flooding it with a supply of cheap rare earths. The Chinese government subsidized their producers and tolerated enormous environmental damage.

And honestly, that move worked. The world saw China as a cheap source for these metals, and many countries shut down their operations, including the U.S. Like, for example, the mountain pass mine in California. That was once the world's leading producer, but it closed in 2002 because they couldn't compete with the low-cost Chinese producers. On top of that, there was issues of toxic waste bills and stringent environmental regulations. I mean, why deal with all that when China was supplying the goods for cheap? China's moved to flood the market with these cheap metals made it almost impossible for any other country to compete. Today, China produces 270,000 metric tons of rare earth.

per year. That's more than all the other countries combined. But see, here's the thing. China didn't just stop at mining. They built out the entire supply chain from mining to refining to alloying to magnet manufacturing. In fact, refining is the hardest part when it comes to these metals. Rare earths don't come out of the ground pure. They're mixed with other minerals and sometimes radioactive elements. So separating them requires toxic chemicals, complex extraction processes, and massive amounts of waste. Most countries don't. don't want that pollution. Like even today, US-based miners like MP materials in California, they ship their rare earths to China for refinement before it gets shipped back to the US. So China

fully built out and embraced the rare earth supply chain. And that's why China's decision to block exports of these metals could be a major problem that threatens multiple industries and US national security. China's control of the rare metal supply chain isn't just a minor inconvenience for the U.S. It's a major strategic vulnerability. The Pentagon has been freaking out about this for years now. And just last month, the folks over at the Center for Strategic and International Studies, the CSIS, which is a real think tank and not a TV show, they called the U.S. dangerously reliant on China. And the other problem is the U.S. doesn't have a big strategic reserve of these metals just lying around like we do of oil and cheese.

I mean, the U.S. has some, but not nearly enough to keep up with the demand if things really got cut off. And this is especially a problem for the defense sector and U.S. national security. These metals are used to make a ton of weapons from missiles to night vision goggles and F-35 fighter jets. Now here's the thing. This is not the first time that China has cut off supply of these rare earth metals. They did this back in 2010 to Japan. See, back then China and Japan were going through a diplomatic clash over some disputed islands. So China cut off rare earth exports and prices for some rare earths spiked more than 700%. Japan had to scramble to diversify their supply chain, but it took years. And these days, they have built up a strategic reserve. Also,

back in 2023, China started restricting exports of gallium and germanium. These two metals are crucial for semiconductors and solar panels. So clearly China is not afraid to flex their dominance here. Now, the U.S. isn't just rolling over, and they're starting to make some moves to fight back. Now, up until this point, I've painted a pretty dire picture, but I wanted to talk about what the U.S. is doing to fight back. The first major move was invoking the Defense Production Act. It's the government's version of hitting the panic button, and it's going to help ramp up production of rare earths here in the U.S. President Trump signed the executive order last month to expand the development of federal lands to facilitate mineral production. President Biden also did something similar back in 2022.

Under that authority, the Pentagon awarded $35 million to the U.S. minor MP materials. That funding helped kickstart the construction of a new facility to refine rare earth elements and magnets. Now, like I mentioned earlier, MP Materials was sending their rare earths to China for refinement, but they're going to stop doing that now, in part because of the tariffs, but also in an effort to industrialize the supply chain here in the U.S. Now, beyond just that, the U.S. is also looking for other areas to supply these metals, like Ukraine. The U.S. recently signed a deal with Ukraine that sets up a full mineral deal via a

joint economic partnership. President Trump is also looking to stockpile metals found on the floor of the Pacific Ocean. So it looks like the government is pulling out all the moves here. But even with the Defensive Powers Act and all the stockpiling and the deals with Ukraine, it's going to take some time to build out the rare earth supply chain that China currently has. The U.S. has a long road ahead. And we've got a lot of digging to do, literally. So there you have it. Despite rare earth metals not actually being that rare, they're still incredibly crucial to many industries, including the U.S. defense industry. Right now, the supply and supply chains of these rocks is primarily controlled by China,

and they're using that to gain leverage in this expanding trade war with the U.S. Pretty crazy to think that some rocks are shaping the future of global trade. Well, all right, guys, that's it for today's weekend, deep dive. Hope you guys enjoy today's episode. If you did, don't forget to subscribe for the podcast, especially on YouTube and Spotify. We actually filmed these deep dives with video, and you can watch it on YouTube and Spotify. And if you have topics that you think we should cover in future deep dive episodes, let us know in the comments. Thank you guys again for listening. Shout out to Mike and Connor for all the help behind the scenes, and we'll see you guys back here on Monday.