U.S. agencies alarmed by China’s curbs on exports of rare earth minerals

Senior administration officials are scrambling to stem economic damage from China’s restrictions on rare earth exports, as President Donald Trump’s trade war risks cutting key industries and defense contractors off from supplies of metals crucial to production, according to three people familiar with internal deliberations.

While companies search for alternative suppliers and urge the White House to cut a deal that will keep the materials flowing to U.S. manufacturers, the Trump administration is finding there are no easy solutions. China has a lock on the supply of certain elements that are essential to making such things as military drones, consumer electronics, and battery-powered vehicles.

“China knows this is a very strong bargaining chip, and it is why they are playing it,” said Ashley Zumwalt-Forbes, who was a deputy director for batteries and critical materials at the Energy Department during the Biden administration. “This is fast emerging as our Achilles’ heel. What makes these bans particularly dangerous is, oftentimes one of these materials is a single point of failure for entire supply chains, and its production rests solely in China.”

The restrictions, imposed by Beijing in response to Trump’s steep new tariffs, have provoked deep consternation at high levels of the administration. Aides at the White House National Security Council, National Economic Council, Council of Economic Advisers, Commerce Department, Energy Department, and Office of the Trade Representative, among several other agencies, have been involved, said the people familiar with the discussions, who spoke on the condition of anonymity to reflect internal matters.

Beijing curbed exports to the United States this month of the rare earths, a group of 17 metals critical for industry. Amid deepening concern over potential economic fallout from the trade war, Trump has softened his tone in recent days, saying that the U.S. is eager to make a deal and floating substantial reductions in the import duties.

While the administration was aware that the metals posed a vulnerability, the U.S. government does not have many viable alternatives for industry leaders now panicked that their supplies will dry up within months. Companies are in many cases relying on reserves to carry them for now. And they are looking for ways to sidestep the Chinese rules by reprocessing and recycling materials exempt from the ban from which small amounts of the rare earths can be extracted.

“Some companies have maybe 40 to 60 days of stock left,” said Zoe Oysul, a senior policy analyst at SAFE, a group that advocates for U.S. energy and supply chain security. “If China does not approve their export contracts, they are concerned about whether they will be able to continue to manufacture when that stock is gone.”

The administration is grappling with this fallout despite years of efforts by the federal government — under several presidents — to address the U.S. rare earths vulnerability. Trump signed an executive order reaffirming the need to set up supply chains outside China before he launched his trade war. But Beijing’s new curbs have magnified the fears of immediate economic consequences.

U.S. officials have in recent days considered options to expedite processing and capital for projects to produce rare earths domestically, the people familiar with the talks said. Officials have also sought trade deals with other foreign partners that could reduce dependence on Chinese processing facilities, they said.

“It is a structural issue highlighted and emphasized and inflamed by a trade war. The U.S. is looking for a long-term, sustainable, structural solution rather than a Band-Aid,” said Gracelin Baskaran, director of the Critical Minerals Security Program at the Center for Strategic and International Studies, a Washington-based think tank. “This administration, starting under Trump’s first term, is looking to identify and support as many domestic and allied mining and processing projects as they can because if they don’t address the structural issue, there will continue to be one.”

But propping up new supply chains is cumbersome and costly. It will take 10 to 15 years before a robust supply chain that excludes China can be fully developed, according to Pini Althaus, CEO of Cove Capital, which is investing in new critical mineral supply chains around the world.

“This should come as no surprise to us at all,” he said. “The writing has been on the wall for a long time.”

Althaus said China had weaponized its control over rare earths long before Trump’s trade war.

China’s government is projecting confidence that it can outlast the U.S. in a protracted trade war in large part because of the potential damage inflicted by its restrictions on rare earth metals, said Eswar Prasad, a Cornell University economist who has spoken this week with Chinese finance officials.

“That is the choke point,” Prasad said. “Beijing does not feel like it is going to back down and that the U.S. is in no position to dictate terms. A big, big part of that is rare earths, where they feel they have the capacity to do significant harm to American manufacturers.”

China banned the export of rare earths to Japan amid a 2010 dispute involving the collision of fishing vessels in Japanese waters. The restrictions disrupted key industries in Japan, including the production of automobiles. And Beijing had already started limiting exports to the U.S. before Trump took office, in response to President Joe Biden’s restrictions on selling advanced computer chips to China.

But firms in other countries have struggled to put a dent in China’s control. While the materials are crucial, they are only needed in small amounts, and the profit margins for companies that sell them are thin. The mines and processing facilities involved in their production can be heavily polluting.

America’s only rare earths mine is the Mountain Pass mine in California’s Mojave Desert. MP Materials, which runs the mine, is working to quickly expand its processing capability, partly with the help of some $45 million the company received coming out of the first Trump administration. But after investing nearly $1 billion since 2020, the company doesn’t currently have the ability to process the heavy rare earths that China is restricting. A new rare earths mine is years away from operating in the U.S.

Companies that currently rely on Chinese supply chains have lobbied against U.S. restrictions on imports from China that would have forced them to invest in building supply chains elsewhere.

“Now, we are seeing a flurry of activity from companies requiring these critical minerals reaching out to companies that are working on developing supply chains outside of China,” Althaus said. “But there will be a squeeze.”

He said it is not just American companies desperate for new suppliers: The European Union projects its own shortfall in the coming years, and its firms are scrambling to find new suppliers, too.

The U.S. does have some strategic stockpiles, but they are small and can be tapped only if there is an urgent national security need.

“During the Cold War, we had $50 billion of strategic materials stashed away,” Zumwalt-Forbes said. “It was to ensure the U.S. and allied nations could supply the industrial base in the event of a conflict.”

But the stockpile has dwindled to $800 million worth of materials, she said.

“We sold off the bulk of those stockpiles in the ’90s and early 2000s,” Zumwalt-Forbes said. “It has left us in a vulnerable place.”

The Associated Press contributed to this article.