Critical minerals part deux: China's dominance
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A lot of our modern life requires critical minerals. Phones, cars, lights, cameras, they all depend on these deposits of rare earth. And right now, China is in the driver's seat.

In April, Beijing suspended exports of a wide range of rare earth metals and magnets after the U.S. imposed heavy tariffs on China. The move has thrown automakers, aerospace manufacturers, semiconductor companies and military contractors into something of a panic.

automakers are warning this shortage could force car factories to shut down within weeks. On this weekend episode of Reuters World News, how China came to dominate this supply chain and what it means for global politics going forward. I'm your host, Jonah Green. I'm joined now by Lori Chen, Ernest Scheider, and Jarrett Renshaw,

Lori covers Chinese politics in Beijing. Ernest covers the green energy transition and the minerals that power it. And Jarrett covers the White House. Welcome all. Hello. Hey, it's great to be with you. Hello. Hi. Ernest, you were in D.C. this week to attend a minerals conference. I mean, first of all, that sounds very fun. But what does one do there?

Yeah. So this is an opportunity for mining companies, processing companies, their investors, policymakers, and regulators to come together and essentially talk about critical mineral supply chains. Now, I got to admit, Jonah, this used to be a very niche conference. I've been going to it for about six or seven years and had very few attendees when it first started off. They had more than 500 attendees this time. And I got to tell you, the number one topic was the

ways that China has been curtailing supply and the ways that Western manufacturers are looking to gain access to these vital building blocks. So that was topic number one. Yeah. What was the vibe there? Were people freaking out that you could tell? Well, I think there's two things that people are focused on. Exactly what Beijing is doing and how automakers can respond and other manufacturers, but then also what policies, especially around tax credit policies, the U.S. government can or should do to try to encourage more domestic production.

Not only of the mining side, but the processing side. So we know that there's the big beautiful bill being debated right now in the U.S. Congress. There are some potential moves to take out certain tax credits that would help companies that want to make rare earth magnets and processing equipment for these critical minerals inside the United States. And if those tax credits go away, well, then that could have an effect on President Trump's plans to increase the domestic production of these materials.

Now, this is also the second time that I can remember, Ernest, that you are on this podcast to talk about critical minerals, which tells you a bit about how critical they are. Now, please refresh our listeners' memories. What are these? What are they used for?

Critical mineral is the term means different things depending on which government you're talking to. But in essence, a critical mineral is a mineral used to make a piece of electronic or other machinery that you basically don't have a lot of supply of in your own country. So lithium, nickel, cobalt, rare earths, germanium, gallium, these are all considered critical by the U.S. government. And they're all used to power these high tech devices that are increasingly being used across our electrified economy.

So without them, we don't have laptops or cell phones or weapons. So you can see why the Pentagon is extremely focused on these areas. Right now, the United States mines very few of these and processes even fewer of them. But China shrewdly over the past, call it 30, 40, 50 years, realized that control of these critical minerals would be essential to dominate the 21st century economy. And that's why China's found itself in such a dominant position right now. And Laurie, China controls 90%.

of the global processing for this, is that right? Yes, that's correct, because processing is a very kind of labor-intensive, dirty, environmentally destructive process. And China, since it has sort of more lax environmental regulations and a very sort of complete supply chain, it's basically taken control of most of this process. And also China basically...

controls mostly production of not only light rare earths, but also, yeah, it has a huge overwhelming dominance in sort of manufacturing heavy rare earths as well and supplying heavy rare earths. How did they become the dominant player in this supply chain? I think just years of kind of increased focus on his industrial policy.

And also, I think China sort of had a taste of what leverage it could wield over other countries in terms of rare earths in 2010, when it banned sort of rare earth exports to Japan entirely over a sort of territorial dispute. So that gave it a taste of the power it could wield over other countries. And ever since then, it's been sort of trying to like very explicitly build up its resilience in supply chains and sort of dominance over the sector and self-reliance as well.

And so right now they're being very selective with who gets it, which is causing a bit of a panic we'll cover in a bit. But first, what reason does Beijing give for restricting exports now?

So this is ostensibly for national security reasons. And also China has been sort of tightening oversight of its defense supply chain. So to make sure none of these critical components or sort of technologies make their way over to the US as well. And this is one area where they have a real kind of stranglehold.

I want to point out a lot of China's know-how here came actually, if we go back to 1951, actually, that year, New York's Columbia University awarded a PhD to a Chinese student, gave him a PhD in chemistry, and he went on to move back to mainland China and basically helped

create the modern Chinese rare earth industry. So much of that know-how started in the United States, but because in the latter part of the 20th century, mining was just not considered a sexy industry by US students or academics or investors or others, that's part of the reason why the entire supply chain atrophied inside the United States. And as Laurie was saying, China realized the potential there and invested heavily, not only in the education, but in the mining and processing of these really important materials. What percentage of

is China mining itself versus buying a mine in a third country and bringing it home to process? I mean, critical minerals are not monolith, right? I mean, there's so many different types and many of them are extracted or mined

and processed in very, very different ways. The United States and its allies do have some deposits and processing capabilities for some critical minerals, but not all. And China, though, has dominated that processing or that middle spot. It does have some deposits of critical minerals within its own borders. It does actually control the world's largest rare earths mine, but it has also invested in mining companies across the globe. So Chinese mining companies operate in the Democratic Republic of the Congo, which has the world's largest supplies of cobalt.

There are also huge miners in Indonesia, which has the world's largest supply of nickel. And they're also heavily invested in lithium projects all across the globe. Many of those critical minerals make their way back to mainland China for processing. But for things like lithium, for instance, I mean, right now, the US has extremely little lithium processing capacity.

The world's largest lithium company is headquartered in North Carolina, and it mines in Chile and Australia. And most of the lithium that it mines in those two countries goes to China for processing. Laurie, you've also written about the bureaucrats who are managing all this within China. How are they determining who gets what and licensing these critical minerals? How does it work?

work over there. Yeah, so basically China says that these export licenses are not targeted at any specific country. So before when these restrictions were first implemented last in April, a lot of people interpreted that as kind of retaliation against the US and a lot of people thought that the US would basically get virtually none of these rare minerals. So what was agreed upon at Geneva? The Chinese basically agreed to

allow to basically place the US on the same par as other countries. So basically subjecting them to the same kind of heightened scrutiny and compliance in the application process for these licenses as say Japan or European countries. So it never sort of promised to remove these export licenses completely. And that's where a lot of these sort of confusion and misunderstanding, especially from the Trump administration has come from. So the process of approving them is extremely lengthy and bureaucratic.

We've heard from sort of European and US companies that they've been asked to provide, in a lot of cases, quite sensitive and proprietary information relating to IP, all for the purposes of identifying their exact end users, because the Chinese are very paranoid about these rare earths getting into the hands of the defense sector in particular. So to the industries that are utterly dependent on these rare earths, what has been the impact and what are the big fears

if it continues in this way. I mean, we heard the warnings from automakers this week. What we've seen as a steady drumbeat in the last few weeks of automakers warning that production could halt by the end of the summer, we've seen changes

German automakers have similar warnings, Indian automakers, U.S. automakers. You say without these critical minerals, particularly the magnets, that eventually they'll run out of supplies and therefore have to shut production of cars. And obviously in U.S. and Germany, car manufacturing is a big part of the economy.

And so how is the US government responding? Joe Biden put a big priority on critical minerals, and we're seeing Trump take a similar stance so far.

Trump has issued an executive order that leverages something called the Defense Production Act to boost production here in the US. He has also issued an executive order to promote deep sea mining, which is kind of an untested, expensive, capital intensive process to get these from deep sea mining beds. We're seeing in Ukraine, there's a Ukraine critical minerals deal that

has a long, long runway, but could provide some critical minerals to the U.S. And all that taken together is all about trying to get increased domestic production of these things. It's not going to happen tomorrow. It's not going to happen a year from now. This is a real long term. It's like turning a ship. This is not something that's going to happen overnight.

So think about sort of the opposite of what China is doing right now. If it opens the floodgates and puts a bunch of rare earths and rare earth magnets onto the global market, well, then the price would plummet. So if you invested billions of dollars in a U.S. facility, well, that could go up in smoke. And that has happened before, as Laurie was mentioning, in 2010 after Beijing blocked exports to Tokyo. They reversed themselves a few months later, and the price of rare earths on the global stage plummeted.

So by unlocking some of this capital, the goal by President Trump and his administration is partly to assuage some of those financial concerns. Now, we'll actually see how successful it is in the coming days, weeks, and months. And I think that also speaks to the tough balancing act that U.S. presidents have here. Typically, tariffs would be an instrument that you could use to boost domestic production and restrict imports.

But as you can see here, that these are vital to the U.S. economy. So and we don't have domestic production at a capacity that could sustain that level of economic activity. So it is a tough balancing act and one that's going to have a lot of stops and starts, incremental gains, incremental losses before I think the U.S. finds itself on some kind of solid footing.

The word leverage has come up a few times. And the practical effect of Beijing restricting exports is that it gives them leverage over what exactly? Well, you know, the U.S. and China are engaged in these bitter trade disputes. And oh, and I should mention, as we were recording this today, Trump and Xi spoke on the phone and we don't yet have a readout.

as to what that is. Presumably, they haven't solved all of the problems that we're discussing today. But what is the political effect of these export controls? I mean, just as objectively speaking right there, Trump put tariffs on about 145 percent. He rattled the markets. And then in response, China put on these export controls specifically on critical minerals, knowing the type of leverage they have. And I think

That has played out. We have seen global industries upended as a result. We have seen Trump be angry about that. He is accused of violating some trade agreements that they did in Geneva. And as you mentioned, there is a call, I think maybe even ongoing now, Chinese state media was first to put out a small readout of it. And it was noteworthy that they say that Trump initiated the call. So that's just...

suggesting that somehow Trump needs to come to the table and needs to have this call more than China. Well, he's getting a lot of pressure, right? There's no doubt. From industry, automakers. And Ernie can definitely speak to the pressure since he was there all week about what they're saying. Yeah. I would just add to that that the entire supply chain ranging from those manufacturing manufacturers all the way to their customers, things like automakers and others,

They need supply of these magnets, and there are very few alternatives out there on the global market. There are really no alternatives fully online in the United States yet, and it'll take a very long time to have the United States even match the capacity for Chinese rivals right now. So if you are in a business that you are constantly manufacturing a product, like a car or another household appliance or something else that needs these magnets supplied,

for construction, well, then you are really, really, really going to want to access those Chinese supplies yesterday. And so that, I think, just underscores the huge tension and the pressure that industry is putting on the White House right now. Laurie, you've also written about how diplomats and business executives are stepping in to urge Beijing to loosen up. How are they trying to appeal to China? And is it

Is it working? I think it's very hard to pinpoint exactly the sort of cause and effect of this. There has been a slight uptick in licenses being approved for US firms and also European firms, but there's still like hundreds and hundreds outstanding, possibly even thousands. So it's something that's definitely being raised in every single meeting process.

that any sort of developed nations officials or leaders have with their Chinese counterparts. I think the EU Trade Commissioner Maros Sefcovic also raised it in a meeting with Chinese Communist Minister Wang Wintao yesterday. There's still a sort of a desperate need for clarification from both sides on how to comply with these sort of licensing restrictions. And also, they've just been ceaselessly urging China to speed up

the approval of this, despite it being a very sort of lengthy bureaucratic process. A Japanese business delegation is visiting China this week, and that is very much at the top of their agenda when meeting Chinese officials.

Can other countries help fill the gap? In talking to folks, I think one thing we see is Trump has set off trade negotiations with dozens of countries that's set to conclude July 8th, I believe. I expect to see a lot of these trade negotiations include language around critical minerals in some way to boost the supply chain to the extent that these trading partners can work together to kind of cut China out. So that

That's something to watch out moving forward as we see the details of these trade deals come to light. Africa is an area that I think will be interesting to look at in the next few years where the US, even under Biden, was really trying to make inroads there with trading partners to get critical minerals to the US and create relationships. And China's doing much of the same. So that's going to be a real battleground in terms of where maybe some next generation of critical minerals come from. Yeah.

Thanks again to Jared, Lori, and Ernest for their time and expertise. You can read more on this story on Reuters.com or the Reuters app.

Reuters World News is produced by Gail Issa, David Spencer, Sharon Reich-Garson, Kim Vanell, Christopher Wall, Jasper, and me, Jonah Green. Our senior producers are Tara Oaks and Carmel Crimmins. Our executive producer is Lila Dekretzer. Sound design and musical composition by Josh Sommer. Don't forget to follow us on your favorite podcast player. We'll be back on Monday with our daily headline show.