Negotiations over new tariffs on China have become a central element of President Donald Trump's renewed trade wars because of the scale of the trade relationship and the geopolitical implications of a future agreement.

Following several days of trade negotiations in London between Chinese and US delegations, Trump announced they were successful, building on an earlier discussion in Geneva. 

“We have reached a framework for implementing the Geneva Consensus and the call of the two presidents,” US Commerce Secretary Howard Lutnick told reporters after Trump’s statement.

Most analysts agree that a central point of the agreement involves China supplying the US with rare earth minerals (REM), crucial for major American industries like automotive, semiconductors, and smartphones.

The decision to hold talks in London was reached after a 90-minute telephone conversation between presidents Xi Jinping and Trump. This was the first interaction between the two leaders since Trump began his second term. 

It came after a productive summit in Geneva in May, where top government representatives from both nations agreed to lower tariffs that had reached exorbitant levels during a trade dispute in April. 

In Geneva, both countries agreed to implement a 90-day pause on additional tariffs to facilitate negotiations for a broader trade agreement.

American mineral deficiency 

Extracting REMs is a highly complex process because they are not found in pure form but are obtained from ores. Extracting heavy REMs poses even greater challenges. 

These elements must be separated from the chemical compounds they create using specialised and unique equipment, which is still mainly developed and manufactured in China.

These factors and abundant reserves have permitted Beijing to establish a near-monopoly in this sector. 

Today, Chinese mines contribute approximately 70 percent of global rare earth metal production, while in the processing domain, China holds nearly 90 percent – a figure close to 99 percent until 2023. 

In addition, the country boasts a significant manufacturing and resource base and a growing domestic market, potentially allowing it to redirect trade flows.

The US accounts for only 11 percent of global REM production.

The Trump administration has faced massive pressure from the automotive sector, which is swiftly transitioning to electric vehicle (EV) production. 

The International Energy Agency (IEA) reports that in 2024, over 70 percent of global EV manufacturing occurred in China, resulting in a total output of 12.4 million EVs. 

Among these, Chinese firms produced the majority at 10.2 million, followed by 900 thousand manufactured by US-based companies, with the remaining 1.3 million from joint ventures between Chinese and foreign firms. Sales within China reached 11.2 million units 

That same year, 2.4 million vehicles were produced in the EU, the next largest region for EV production.
 
CNBC estimates that a typical single-motor electric vehicle contains 550 grams of rare earth elements, 300 grams of which are used for magnets.
 
Additionally, China is responsible for around 90 percent of the world's annual production of rare earth magnets, totalling 200,000 tons. 

China’s limitations on rare earths also threaten the American defence sector. Since 2020, the Pentagon has allocated $439 million to establish its supply chain, but progress remains in its infancy. 

In late March 2025, Trump invoked the Defence Production Act (DPA 1950) to boost exploration, mining, and the refinement of REMs. American military-industrial corporation Lockheed Martin is among the leading importers.

The dragon’s grip

Beijing employs various tools to enforce its export restrictions. The government monitors the destinations of exported REMs. 

Since April, exporters must submit six documents, including endpoint profiles for their shipments. This new requirement has led some companies to reduce their purchases from China due to concerns about the confidentiality of this information.

Importers and end-users must also sign declarations agreeing not to transfer the product to another party without China's approval. 

By doing so, Chinese customs can track and prevent the re-export of REMs from third countries to the US, Japan, Germany, and other nations.

Beijing’s near-monopoly on rare earths may strongly influence competitors' strategies. Several international companies actively seek alternatives to reduce dependence on Chinese rare earths. 

For instance, Tesla has reportedly cut its reliance on rare earths in its motors by 25 percent and is working to find replacements. 

Meanwhile, General Motors has indicated it is “exploring options to limit or potentially eliminate rare earths in electric vehicle motors,” though no definite timeline has been provided.

Competitors will struggle to match China's dominance in REMs mining and processing. 

Benchmark Mineral Intelligence states that mining ore and converting it into oxide in China costs approximately $11-$15 per kilogram. In contrast, the same process costs around $35-$40 per kilogram in Brazil, and even more in the US or Australia.

Furthermore, creating new technologies to replace rare earth usage is lengthy and costly.

Different estimates suggest that the global REM market was valued at $7.55 billion by Research and Markets and $6.2 billion by Future Market Insights, Inc. in 2024. 

It predicted that the market will increase to $16.1 billion by 2034, with a compound annual growth rate (CAGR) of just over 10 percent.

In 2024, China’s manufacturing value added reached US$4.16 trillion, accounting for 29 percent of the global total and exceeding the next four largest manufacturing countries combined (the US, Japan, Germany, and India). 

It will be incredibly difficult for other countries, including the US, to catch up with China in this industry. Therefore, negotiating with China to purchase REMs appears to be the only feasible approach for the US in the foreseeable future.