Commentary: How long can China play its rare earths trump card against the US?

SINGAPORE: You don’t have to be an expert in international security to see that China is currently emboldened on the world stage. 

And to be fair, it has good reason to be confident, especially after United States President Donald Trump and Chinese leader Xi Jinping met in South Korea last week and reached a trade deal.

Compared to the 2018 trade war during Mr Trump’s first term, Beijing is much better prepared to deal with the US this time. It fortified its economy and identified points it could use for leverage. Instead of skirmishing with tariffs and counter-tariffs, China went for what one scholar called the “nuclear” option. 

In the lead-up to the meeting in South Korea, China instituted sweeping export controls over rare earths. And it worked, paving the way for a deal where it gained concessions on key tariffs and export restrictions.

This playbook is strongly influenced by the belief among Chinese leaders that they understand Mr Trump and know how to deal with him. To them, Mr Trump is not a natural China hawk, his policies are not rooted in ideologies beyond a preference for tariffs, and he is open to trading strategic concessions for non-strategic incentives. 

Yet, it is also this playbook of maximum pressure that introduces several risks to the US-China relationship. Taken too far, China’s confidence in its rare earths card can lead to miscalculations, which in turn can have grave consequences for regional stability. 

THE ART OF THE (CHINESE) DEAL

To be fair, playing the rare earths card didn’t give China a free pass. The deal delivered results for both sides. 

China walked away with some tariff relief, along with pauses on two fronts: port fees on Chinese-built, owned and flagged ships, and a Bureau of Industry and Security rule that could have prevented more than 20,000 Chinese companies from buying sensitive American technology. The US received a commitment from China to buy American soybeans and a one-year reprieve on rare earth export controls. 

There are also omissions from the deal that would relieve some observers. Taiwan and its supporters are probably glad that US support of the island was not included in the deal. There was no loosening of export controls on Nvidia’s high-end Blackwell chips as US security experts had feared.

However, arguably the most significant thing that Beijing gains from this deal is vindication of its approach. Chinese leaders now have evidence that Mr Trump can back down when threatened with the supply of goods that the US depends on China for, like rare earths. And it could easily go further to weaponise the supply of pharmaceuticals, lithium-ion batteries and mature chips. 

With two more meetings between Mr Xi and Mr Trump reportedly in the works for 2026, it is still possible to extend or deepen the ongoing truce. But there are ample opportunities for escalation and a breakdown in ties, too.

SAME APPROACH, SAME WEAKNESS

There is a certain irony that Beijing’s maximum pressure approach borrows from the Trump administration’s own diplomatic style. Yet, utilising this playbook not only shares its strengths, but its weaknesses too.

Notably, just as traditional trade partners of the US are looking to diversify their trade networks to avoid overdependence on Washington, Beijing’s leveraging of its rare earth chokehold will only spur efforts by the US and other countries to diversify away from overdependence on Chinese supply chains, starting with rare earths.

The signing of the US$8.5 billion deal between the US and Australia to expand mining and processing facilities, along with other critical minerals agreements signed with parties such as Japan, Malaysia and Thailand, are signs of this push for diversification. 

The standoff over EU-based, Chinese-owned Nexperia showed how countries are concerned about China’s potential weaponisation of supply chains. The Netherlands took control of the chipmaker under national security laws in September and China responded by halting exports from Nexperia factories in China.

Granted, countries will not be able to dramatically rewire their rare earth supply chains overnight, with one estimate giving it five to seven years before the investments are translated into functioning projects. Nonetheless, it is important to start building an alternative supply chain now.

In the meantime, the more Beijing uses its rare earth trump card, the less effective it will become in the long term. Yet this realisation may also encourage Chinese leaders to use this point of leverage while they still have it.

NO INCENTIVE TO DE-ESCALATE

In the short term, a related challenge with a maximum pressure approach is that it gives the US few incentives to de-escalate. 

While China’s toolkit still retains carrots such as the TikTok sale and more soybean purchases, its response to US actions would likely involve rare earths and other sticks. In doing so, issues with proportionality and credibility could emerge.

Suppose, for example, that Mr Trump goes through with a previously reported package of secondary sanctions against China for its purchases of Russian oil, as part of US efforts to pressure Russia to the negotiating table to end its war with Ukraine. Naturally, China would be expected to retaliate.

But if China immediately reaches for the rare earth card against such a relatively minor issue, the US would be inclined to escalate as well. There is little incentive to keep the standoff contained to a relatively minor issue if China charges in with all guns blazing.

Alternatively, the US may choose to call China’s bluff on rare earths. It could be seen as a mirror image of the expectation that Mr Trump always caves on tariffs; if China wants to re-use its rare earth card in a future dispute, it will need to allow the flow of minerals to resume at some point.

Inherently, sorting out the complex dynamics of the US-China relationship becomes even more challenging if both sides adopt a maximum pressure approach. 

It creates a field rife with opportunities for miscalculations, and incentives to escalate instead of de-escalate. It will also hasten the decoupling of the two economies, with both convinced that reliance on the other is an unacceptable vulnerability.

The maximum pressure approach with rare earths worked for Beijing during the Trump-Xi meeting and may still provide some utility in future meetings. But it contains risks that cannot be ignored in the interest of regional stability.

Kevin Chen is an Associate Research Fellow with the US Programme at the S Rajaratnam School of International Studies (RSIS), Nanyang Technological University (NTU), Singapore. He writes a monthly column for CNA, published every first Friday.