The trade war is now all about rare earths. Here's what they are and why they matter

You’ve probably never heard of dysprosium or neodymium, but Tesla vehicles, F-35 fighter jets, and your iPhone rely on them heavily. They’re two of the 17 elements known as rare-earth elements (REEs) — a bit of a misnomer because they’re actually not particularly rare. What is rare, however, is the ability to process them. And that’s a big problem.

Today, China controls nearly all global processing of rare earths, while the U.S. is scrambling to catch up. As demand surges for electric vehicles and high-tech defenses, these somewhat obscure elements sit at the heart of the 21st-century economy — and have increasingly become one of the biggest flashpoints in the escalating U.S.-China trade war.

Here’s what you need to know about rare earths — and why the stakes are suddenly so high.

What are rare-earth elements, really?

Despite the futuristic ring of the term “rare earths,” they’re not exotic minerals beamed down from space. Rare earths are found in abundant quantities throughout the Earth’s crust, but they rarely appear in concentrations high enough to be easily extracted and refined — and to make doing so economical. 

Instead, these elements are often mixed with radioactive rock — think of a fruit salad of minerals, where the flavors are the REEs and the rest is, well, literally trash.

Rare-earth elements (REEs) fall into two main camps: light and heavy — terms given based on their atomic weights. Light REEs, such as neodymium and praseodymium, are more common and primarily used in industrial applications such as permanent magnets for electric vehicle (EV) motors, wind turbines, and consumer electronics. Heavy rare earths, such as dysprosium and terbium, are far less common and significantly harder to process — and are more heavily restricted. They’re essential for more specialized uses, including high-performance magnets, military hardware, and advanced clean-energy technologies.

A single F-35 fighter jet, for example, contains around 900 pounds of rare-earth materials — an eye-watering amount for elements most people have never heard of. Your iPhone? It may only contain a few grams, but it wouldn’t work without them.

China’s metallic grip on the supply chain

China doesn’t just mine rare earths — it refines nearly 100% of the global heavy REE output and the majority of light ones (about 90%). That means even if the U.S., Australia, or other countries dig them up, they typically send them to China for separation, refining, and magnet production.

This choke point gives Beijing formidable economic (and strategic) leverage — one that it has increasingly shown a willingness to use. In late 2023, China required companies to apply for export licenses to ship certain heavy REEs, catching global industries off guard. Officials described the move as a routine regulatory update, but industry experts and national security analysts saw it as a thinly veiled threat: China is ready to weaponize its control of critical minerals. ​​“China could use its dominant position in the rare earth market to gain leverage in trade negotiations,” the U.S. Congressional Research Service noted in a 2023 report. 

In 2025, things escalated. This spring, Beijing added seven key rare-earth elements to its dual-use export control list, requiring special licenses for overseas shipments. Soon after, it rolled out a sweeping permit system for high-performance rare-earth magnets. The fallout was immediate. Shipments stalled for weeks, then months, especially for companies with heavy U.S. exposure. While European and Southeast Asian buyers received some preferential treatment, American companies were largely frozen out. Tesla reportedly saw rare-earth–related parts delays that dented production.

Then came the pivot. 

Following high-stakes trade talks in London this month, China agreed to ease some restrictions — but only slightly. Magnet export licenses were granted again, with a catch: They now expire after just six months. It’s a classic geopolitical feint — lift pressure long enough to restart negotiations, but keep the threat close. Beijing hasn’t issued a blanket ban. Instead, it’s playing a longer game, using a rolling-export-permit strategy to maintain leverage while staying (technically) within the rules — showing how China can legally “weaponize” critical materials without outright bans.

Why the auto industry feels rare-earth restrictions first

Of all the industries caught in the crossfire, the automotive sector might be the most vulnerable. Automakers — especially EV-makers — are on the front lines of the rare-earth squeeze. Some are reportedly in a “full panic,” because most electric vehicles use permanent magnet motors made with rare earths (such as neodymium and dysprosium). These magnets are compact, powerful, and crucial for improving EV range and energy efficiency. Even traditional gas-powered cars use rare earths in components such as power steering systems, fuel economy sensors, and braking mechanisms.

In short: No rare earths, no car.

Some automakers, including Tesla, have reportedly begun exploring rare-earth-free motor designs. But these alternatives often come with tradeoffs: larger size, lower performance, and reduced energy efficiency. Most companies aren’t ready to pivot away from REEs anytime soon, especially as demand for EVs continues to soar.

Can the U.S. catch up?

It’s trying, but the road is long — and uphill.

The only active rare-earths mine in the United States is Mountain Pass in California, owned by Nevada-based MP Materials. While it produced a record 1,300 tons of neodymium-praseodymium oxide in 2024, the U.S. still lacks domestic facilities to process heavy rare earths at a commercial scale.

The Department of Defense has committed more than $439 million under the Defense Production Act to jumpstart a domestic supply chain, funding projects from mining and refining to magnet production. The goal: to create a full “mine-to-magnet” infrastructure in the U.S. But analysts warn that even with significant federal support, domestic production won’t be able to meet demand until at least 2026 — and maybe much later.

The Biden administration prioritized rare-earth independence as part of its broader clean energy and national security agenda. But the issue could escalate under the second Trump administration. President Donald Trump has reportedly floated the idea of expanding the use of the Cold War-era Defense Production Act and at hinted at building a “rare earth reserve” modeled after the Strategic Petroleum Reserve to hedge against future shortages.

MP Materials would be a big beneficiary. Bloomberg reported that Deputy Defense Secretary Steve Feinberg is working to line up funding for the company, which has already received millions from the department. Defense Secretary Pete Hegseth said in a recent congressional hearing that MP Materials “is a great example of a place where we can partner with industry,” adding that Feinberg is focused on sourcing REEs.

China, for its part, seems to be continuing to tighten controls. But as the U.S. and its allies ramp up their efforts to diversify sourcing and build parallel supply chains, experts warn that the next few years could see serious disruptions — not just for EV-makers, but for defense contractors, clean-tech companies, and advanced manufacturing more broadly.

Strategic minerals, strategic era

In the short term, the U.S. and Europe will likely lean more on stockpiles, subsidies, and partnerships with friendly mining countries such as Australia and Vietnam. But many of those countries still send their ore to China for processing, at least for now.

In the long term, control over rare earths may determine who leads the global economy. Much like oil in the 20th century and semiconductors in the 21st, rare earths are becoming a strategic asset — one that could shape industrial policy, trade negotiations, and military power for decades to come.

They may not be household names yet. But in the shadow war over the future of energy and tech, rare earths are the most essential elements you’ve maybe never heard of.