Crossed Wires: Forget AI — China’s rare earth chokehold is the real arms race

Like most people, I assume, I have cursorily read about “rare earth minerals” and was vaguely aware of the fragility of supply chains. But also, like most people, I had only a fuzzy idea of what these things are, and why they might be significant. There always seemed to be more important stories in the news – Israel, Ukraine, immigration, crypto, AI, the economy.

Then, on Friday, 10 October, Donald Trump had a meltdown about China. He posted the following on Truth Social (somewhat abbreviated here for sanity’s sake):

“It has just been learnt that China has taken an extraordinarily aggressive position on Trade in sending an extremely hostile letter to the World, stating that they were going to, effective 1 November 2025, impose large-scale Export Controls on virtually every product they make, and some not even made by them. This affects ALL Countries, without exception, and was obviously a plan devised by them years ago. It is absolutely unheard of in International Trade, and a moral disgrace in dealing with other Nations.”

This was immediately followed by heavyweight tariff threats (100% over and above existing tariffs on China), which resulted in a sharp pullback in  markets around the world. A vicious war of words followed between various Chinese and US government officials, including US Treasury Secretary Scott Bessent, who is normally cautious with words. In an interview with the Financial Times he accused China of trying to hurt the world’s economy, saying: “This is a sign of how weak their economy is and they want to pull everyone else down with them... maybe there is some Leninist business model where hurting your customers is a good idea…”

Oh dear. Or rather, why the fireworks?

Trump was upset, above all, by China’s announcement of a new export policy, which stated that anyone who wanted to import various classes of rare earth minerals (also called REEs – rare earth elements) would need to apply for a licence. No matter what the use is. Not country use. Not even company use. Rather, every use in every product now requires an application to the Chinese Communist Party.

Let’s start with what these things are. The REEs are all (mostly) clustered in a neighbourhood of the periodic table between atomic numbers 57 and 71. I won’t attempt to name them all, because I am already above my pay grade and no one will remember anyway, but suffice it to say that they share chemical signatures and offer a range of unique magnetic, luminescent and other properties critical to, well, much of modern life.

Let me count the ways in which they are used – motors, turbines, jet engines, TVs and displays, batteries, oil refineries, fibre-optic amplifiers and lasers, satellites, earpods, wind turbines, smartphone screens...

The list goes on and on. You get the picture. Without access to REEs, the production of many of the items we care most about will become, at best, massively more expensive or, at worst, grind to a halt.

In a recent blog the analyst Sahil Nair presented the following sharp example:

“The blades in a jet engine run hotter than the melting point of metal. How? They are coated with yttrium-stabilised zirconia, a rare earth compound that prevents them from melting. There are no modern jet engines without rare earths. Period.”

China has the good fortune of having lots of the stuff – about 69% of mined rare earths and about half of known reserves, according to a US Geological Survey. They are not so much rare as difficult to extract, and found mostly in a single area in Inner Mongolia. This is also where a dystopian-looking industrial city called Baotou, anchored by the 48km² Bayan Obo mine and a 122km² rare-earth hi-tech zone, has sprung up. Here almost all REEs are mined and beneficiated – 24 hours. Having long ago decided to capture the entire supply chain of REEs from mining to final product, China now controls 91% of the world’s supply. That’s pretty much as pure a monopoly as one can find.

It is not as though the West did not know it was happening, but the environmental cost of this activity was considered unpalatable to voters. They were happy to let China do the dirty work (the US stopped mining rare earth minerals in 2002 when the Mountain Pass mine in California was closed after activist pressure. It has restarted since and produced about 45,000 tonnes in 2024). China was handed a literal chokehold on the world economy. 

Nair goes on: “This is the part that becomes truly frightening, and I have to be blunt about it. Might it be possible for China to use the chokehold on rare earths as a blockade on most of the modern economy? The answer, unfortunately, is yes.

“All you need to do the maths is think about how every advanced semiconductor in the world uses rare earth materials. Every EV needs them. All renewable energy systems rely on them. AI infrastructure? Depends on rare earths. Defence systems? Same thing. You can’t have a modern economy without them.”

And then finally, the “Magnificent Seven” – Meta, Nvidia et al – comprise 35% of the value of the S&P 500. Every one of them needs massive data centres powered by AI chips that require REEs. It doesn’t take a rocket scientist to see what could happen should China close the faucet.

That is why Trump and Bessent are upset.

It is not because they are angry.

It is because they are scared. DM

Steven Boykey Sidley is a professor of practice at JBS, University of Johannesburg and a partner at Bridge Capital and a columnist-at-large at Daily Maverick. His new book, It’s Mine: How the Crypto Industry is Redefining Ownership, is published by Maverick451 in South Africa and the Legend Times Group in the UK/EU, available now.