To The Moon

Rare earths, though not scarce, are critical, and China holds them hostage in a strategic play against President Trump, especially with both leaders’ birthdays approaching next week. Following a U.S.-China leaders’ call, China partially eased rare earth export restrictions, offering Trump temporary relief. Navarro confirmed new trade talks next week, where rare earths will take center stage. Should negotiations falter, China could swiftly tighten the reins, leveraging its dominance to yield favorable outcomes.

$MP Materials Corp.(MP)$  

$LYNAS RARE EARTHS LTD(LYC.AU)$  

$The Metals Company(TMC)$  

Reuters reports that China issued six-month export licenses to General Motors, Ford, and Stellantis for select rare earth products, with a caveat: licenses require 45-day processing, civilian-use restrictions, and tracking systems, with non-compliance risking a permanent supply cutoff. On Wednesday, MEMA, representing U.S. auto suppliers, alongside a trade group for GM, Toyota, Volkswagen, Hyundai, and others, issued an urgent joint letter warning that China’s restrictions threaten production of critical components like automatic transmissions and throttle bodies. MEMA stated, “The situation remains unresolved, and the level of concern remains very high. Immediate and decisive action is needed to prevent widespread disruption and economic fallout across the vehicle supplier sector.”

The Wall Street Journal highlighted that rare earth shortages are pushing U.S. manufacturers, particularly automakers reliant on these materials, to relocate production to China. While China restricts raw rare earth exports, it allows finished products, making production shifts viable but costly. Since competitors face similar costs, it’s a level playing field, though it turns Trump’s “reshoring” vision into reverse offshoring, with U.S. automotive capital flowing to China.

China mines 70% of global rare earths, with Myanmar, Australia, and the U.S. covering most of the rest, but it processes 90% of the world’s supply. For heavy rare earths—vital for heat-resistant magnets in high-tech applications—China’s refineries dominate with 99.9% of global output, sourced from rich deposits near Longnan, extending to northern Myanmar. China’s message is clear: “You choke my chips, I choke your rare earths.” Escalation could disrupt U.S. radar and weapons production, with a U.S. Defense Intelligence report warning that a Chinese mineral ban would impact over 1,000 weapons systems and 20,000 components, relying on 90nm+ chips due to smaller nodes’ susceptibility to interference.

China’s export licensing system, with active tracking, demands customer lists, order quantities, production plans, and supplier details to validate quotas and trace end products, mirroring U.S. demands on TSMC and Samsung. The Chinese Foreign Ministry insists these controls align with global norms. With Trump’s and the Chinese leader’s birthdays next week, China’s partial easing may be a diplomatic gesture, but it’s a calculated “dependency suppression cycle” to maintain leverage in talks, potentially yielding positive results for Beijing.

China’s dominance stems from two advantages: technology and price. Since 1997, its state-led rare earth industry has invested heavily in refining, producing over 100 experts while others lag. Its refining tech leads by a generation and a half, and the U.S. lacks large-scale separation capabilities. Price is the real weapon—Western lab-scale production is commercially unviable. U.S. mining faces high costs and environmental regulations, and while Western rare earth prices have surged 200-300%, China’s controlled exports keep global stockpiles low. This deters Western investors, as building refineries takes 3-5 years and risks obsolescence if China relaxes controls, requiring sustained U.S. subsidies amid policy volatility tied to election cycles.

Historically, Malaysia led heavy rare earths until the 1960s, followed by the U.S. in the 1980s, when California’s Mountain Pass supplied 90% of global output. By 1986, China overtook the U.S. as American production declined and Chinese output surged, driven by cheap alternatives. This fueled China’s cutthroat competition, selling rare earths at rock-bottom prices from the late 1980s to early 2000s, deepening Western dependence. Chinese firms later consolidated the industry.

Western responses include leaning on Australia, where Lynas achieved heavy rare earth separation in Malaysia and plans further production by June, backed by a $258 million U.S. contract for a Texas refinery. Reliance on China persists until at least 2026, per the Center for Strategic and International Studies. Recycling, like gallium (66% Chinese-produced), is another focus, with the West dominating secondary production. Media campaigns amplify China’s control to pressure policymakers, though China eased restrictions for Europe and South Korea (79.8% reliant for semiconductors) to secure its chip supply chain. State-funded U.S. refineries could rebuild the industry in 3-5 years, while the EU’s 47 strategic projects aim to reduce reliance, though execution lags.

Rare earths are China’s trump card against Trump. With conflicts draining U.S. military resources and birthdays adding symbolic weight to upcoming talks, China’s control could slow U.S. weapons and economic growth, securing strategic wins. This highlights three truths: technology is power, supply chains are politicized, and deep interdependence makes decoupling costly. Victory lies in absorbing blows like cotton, neutralizing the opponent’s strength.

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