Flashpoints | Economy | East Asia

The pause on expert restrictions was neither the U.S. victory Trump proclaimed it to be nor the act of a supremely confident, unassailable China.

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When U.S. President Donald Trump emerged from his October summit with Chinese President Xi Jinping in Busan, South Korea, he declared it a “12 out of 10” success. Washington, it seemed, had won a major concession. In exchange for tariff relief, Beijing agreed to pause its escalating export controls on rare earth elements for one year, granting U.S. industry a vital reprieve.

This interpretation is dangerously wrong. It mistakes a tactical maneuver for a strategic retreat. Chinese-language analysis of the summit reveals a different story: one of strategic patience from a power that understands both its structural dominance and its acute vulnerabilities. Beijing’s move was not a concession but a calculated exercise of power – a strategic pause that maintains leverage while managing vulnerabilities.

Beijing’s confidence rests on a fundamental asymmetry in 21st century great power competition. U.S. chokepoints, built on high technology, are proving fragile. China’s chokepoints, built on grubby industrial processes, are proving extraordinarily durable.

The asymmetry of time favors China: building a single integrated mine-to-magnet supply chain takes 10 to 15 years. This explains why, 15 years after China’s 2010 rare earth embargo against Japan, Western dependence has barely budged. Meanwhile advanced semiconductor technologies become obsolete far faster – and China has already found “good enough” substitutes.

The Industrial Fortress

China’s dominance is not a simple accident of geology. It is an industrial fortress, built over 40 years with patient capital and a willingness to bear environmental and social costs no Western democracy will tolerate. This fortress is secured by three mutually reinforcing locks.

*First: The Resource Lock. *The public debate conflates all 17 rare earth elements as equivalent. This is fundamentally wrong. The real bottleneck is not in light rare earths, which the United States, Australia, and other nations possess in abundance. The chokepoint lies in heavy rare earth elements (HREEs) – specifically dysprosium and terbium – indispensable additives for high-performance magnets in F-35 fighter jets and electric vehicle motors that must function at extreme temperatures.

China’s ion-adsorption clay deposits dominate because they are the world’s most economical HREE source. These clays allow simple, low-cost extraction through ion-exchange leaching at ambient temperatures – a stark contrast to hard-rock HREE deposits like Strange Lake (Canada), Norra Kärr (Sweden), and Browns Range (Australia). These hard-rock deposits require aggressive acid digestion, complex multistage hydrometallurgy, and far higher capital and operating costs – making them economically uncompetitive against China’s clay advantage.

This lock is further secured by a gray-zone supply chain from the Kachin region of northern Myanmar, which provides approximately half China’s heavy rare earth inputs. China, thus, controls approximately 90 percent of global heavy rare earth production and 99 percent processing capacity.

*Second: The Technology Lock. *Possessing the ore is useless without the ability to process it. The rare earth elements are chemically similar and extremely difficult to separate. This is China’s technical black box. Through decades of state-funded R&D, China mastered the complex solvent extraction process.

This is not cutting-edge physics; it is 1980s chemistry. But it represents a technical learning curve measured in decades, embodied in the process know-how of tens of thousands of experienced engineers – expertise that the West, with only a handful of seasoned experts, lacks.

China has now banned the export of this processing technology and restricted talent mobility, locking the box from the outside.

*Third: The Ecosystem Lock. *China has constructed the world’s most complete rare earth industrial chain, from mine to magnet. Critically, it is also the world’s largest consumer of rare earths, accounting for approximately 70 percent of global demand. Its massive internal demand from its globally dominant EV and wind turbine sectors creates economies of scale that make any new Western competitor economically irrational from the start.

This dominance has been purposefully consolidated through a deliberate, four-phase state strategy that culminated in 2021 with the merger of the six major groups into two super-giants: Northern Rare Earth (controlling light rare earths) and China Rare Earth Group (controlling heavy rare earths). This move solidified state control and global pricing power.

China’s Two-Stage Weapon

China is now leveraging this power through a strategy decades in the making. The 2010 embargo against Japan over the Senkaku/Diaoyu islands dispute was a clear test of this leverage. When the World Trade Organization struck down China’s crude export quotas in 2014, Beijing simply pivoted to a more sophisticated approach: consolidating its scattered, low-cost but highly polluting industry into state-run giants to control output and exports.

This new legal framework – principally the 2020 Export Control Law and the 2024 Regulations on the Export Control of Dual-Use Items – enhanced central control and established political legitimacy for actions Beijing previously took informally. The 2025 export controls were the first major deployment of this weaponized legal arsenal, unfolding in two distinct stages.

In stage 1, Beijing placed seven key medium-heavy rare earths and their derivative products under a strict export licensing regime announced on April 4. The case-by-case licensing process, administered by the Ministry of Commerce, caused immediate procedural delays and disrupted global supply chains, forcing auto manufacturers in the U.S., Europe, and Japan to suspend production.

In stage 2, Beijing added five more HREEs to the restricted list and announced its “long-arm jurisdiction” rule on October 9. This rule, modeled on U.S. semiconductor controls, applied a “foreign direct product rule” (FDPR) for the first time. It required foreign companies using Chinese rare earths or technology to obtain Beijing’s approval for their own exports, even if their products contained as little as 0.1 percent by value of Chinese-origin materials.

The “pause” agreed to at the Trump-Xi summit in Busan suspended only the escalatory stage 2 restrictions, which had not yet taken effect. The true weapon – the active stage 1 licensing – remains fully in place. It was brilliant diplomacy: China secured tariff relief for pausing a future threat while its actual economic leverage continued.

How Long Can China Wield This Weapon?

The story of Mountain Pass, the United States’ only major rare earth mine, illustrates the challenge. It went bankrupt from Chinese price competition in 2002, reopened with Chinese investment in 2017, and today ships its raw ore to China for processing. It is not a competitor; it is a vassal to the Chinese chokepoint.

Yet this does not mean Western efforts are futile – only that they must be strategically targeted rather than economically comprehensive. The goal cannot be decoupling through full-scale market competition, which remains economically irrational given three structural dilemmas.

First, the cost disparity. A new Western processing plant faces a three-to-four-times cost premium against China’s 40 years of sunk costs in infrastructure, manpower, and state-led capital – not to mention intangible costs from environmental damage China has tolerated.

Second, the technology gap. China holds the processing expertise and a growing share of core patents in separation chemistry and magnet manufacturing.

Third, the time paradox. Building a new, integrated HREE supply chain takes 10-15 years. By the time Western plants come online in the 2030s, China’s industry may have advanced to next-generation technologies.

China’s Vulnerabilities

Despite its many strengths, Beijing faces two critical vulnerabilities that, if exploited by the West, would cripple China’s own industrial ambitions. Most dangerously, a full Chinese embargo on rare earths would invite coordinated Western retaliation. The very export restrictions Beijing wields as leverage could backfire, galvanizing allied nations to impose counter-embargoes on the technologies and supplies China desperately needs for its own industrial upgrade.

These weaknesses explain the “pause”: China needs time to close its gaps as urgently as the West needs time to build alternatives. China’s tactical pause was not magnanimity – it was necessity.

China produces 90 percent of the world’s high-performance rare earth permanent magnets, but it does not control the full value chain. The foundational patents for the highest-performance sintered NdFeB magnets – essential for premium EV motors and advanced defense systems – remain held by Japanese firms. China’s leading magnet manufacturers must license this intellectual property.

More critically, China’s premier magnet factories depend on imported precision equipment – high-vacuum sintering furnaces, controlled atmosphere furnaces, and jet milling systems – from Germany and Japan.

In another vulnerability, China depends on the cross-border gray zone in Myanmar for half of its heavy rare earth supply – a dependency that is both enormous and precarious. This supply is controlled not by a stable state but armed groups operating in conflict zones, including the Border Guard Force, which is aligned with Myanmar’s military, and the Kachin Independence Army (KIA), an ethnic armed group operating in conflict zones.

A full Chinese embargo would legitimize Western secondary sanctions targeting this gray-zone supply chain: financial sanctions on traders, transport restrictions, or diplomatic pressure on Myanmar’s military regime. Cutting this channel would reduce China’s HREE supply, forcing Beijing into an impossible choice: either accept severe disruption to its magnet industry, or rapidly deplete its own domestic HREE reserves.

Heavy rare earths are non-renewable, and China’s southern ion-adsorption clay reserves, while substantial, represent its ultimate insurance policy for maintaining global dominance decades into the future. Forcing premature depletion of these reserves would undermine China’s long-term chokehold, trading away strategic depth for short-term supply – a calculation Beijing desperately wants to avoid.

These two vulnerabilities are not academic curiosities. They are the direct explanation for China’s “strategic patience” at Busan. Beijing’s pause was a defensive calculation.

The Asymmetry of Time

The Busan summit was neither the U.S. victory Trump proclaimed it to be nor the act of a supremely confident, unassailable China. It was a mutual recognition of reciprocal dependencies and a calculated pause by both sides.

The path forward for the West is not a futile, full-scale industrial war to replicate China’s 40-year supply chain in five years. The real “asymmetry of time” is a race with two dimensions: China is racing to close its technology and application gaps and diversify the supply of HREEs from Africa. The West is racing to build critical processing capability and independence before China fully locks both its technological weaknesses and supply vulnerabilities.

De-risking from China is not about winning a market competition – it is about building strategic resilience for critical sectors. The viable Western approach is to construct limited, secure, allied-backed supply chains specifically for defense and critical infrastructure applications. These “China-free” supply chains – producing magnets for F-35 fighter jets, Virginia-class submarines, or strategic grid infrastructure – represent a tiny fraction of the global market and cannot achieve economic sustainability through scale. They will require permanent state subsidization through defense procurement and allied burden-sharing. This is not economically efficient; it is a strategic necessity.

This approach aligns with current U.S. and EU policy trajectories: the U.S. Defense Production Act Title III investments, the EU Critical Raw Materials Act, and allied initiatives like the Minerals Security Partnership. The goal is not autarky but assured access – maintaining a sovereign capability for critical military and infrastructure applications, while accepting interdependence for the rest. This is not economically rational in market terms, but geopolitically essential.

The winner will not be whoever builds the most mines or factories. The winner will be whoever most skillfully exploits the other’s dependencies while closing their own – a game of strategic patience measured not in quarterly earnings or presidential elections but in decades. Beijing understands this. The question is whether Washington does.