660% Surge, 90% Dependency: A Tariff Whiplash

Introduction

June 2025 marked a triumphant “recovery” in America’s rare earth crisis, as U.S. imports of Chinese rare earth magnets jumped 660% in a single month, ending months of supply chain chaos that had affected everything from defence to automotive and technology sectors. Diplomats in Washington and Beijing trumpeted the spike, 353 metric tons shipped in June, compared to crisis levels of May, as evidence that even the most acrimonious trade disputes can be resolved through negotiations.

The numbers hid a darker reality: even with the rebound, U.S. imports were still 38% below the same month the previous year, and the U.S. received only 11% of China’s global exports in that month. The episode also highlighted the more fundamental challenge for the world’s largest economy: America remains 90% reliant on its strategic competitor for rare earth materials that are vital to everything from smartphones and EVs to missile guidance systems. The celebrated surge reflected Chinese control, not American strength.

The 2025 Tariff Shock

The crisis started with tariffs: While the Trump administration raised duties on Chinese goods, some as high as 100–145%, Beijing retaliated not with blanket counter-tariffs but by choking off supplies of rare earths, which it controls. By April 2025, China had imposed restrictive licensing on seven key rare earths, and within weeks, the results were apparent: Ford closed its Explorer line in Chicago, U.S. defence contractors reported shortages in components for radar and missile systems, and allies from Germany to India faced similar squeezes on their own factories. The biggest electric scooter maker in India, Bajaj Auto, warned in June 2025 that production might stop by July as permits for shipments stalled.

Relief came in the form of a Geneva trade agreement in which China pledged to ease “non-tariff” restrictions, but the pace of approval was slow and opaque, and U.S. firms continued to scramble. The June spike in exports (which had turned near-zero) was a 660 % surge (and still left America behind historical norms) that demonstrated how tenuous the situation was. Analysts noted: the so-called recovery was a temporary truce, with China retaining the power to turn supply on and off at will.

Analysis based on data from Reuters, Anadolu Agency, and Economic Times reports on China’s rare earth magnet exports to the US, 2025

Structural Dependence and China’s Leverage

The deeper issue is structural. China mines almost 70 percent of global rare earths and has almost 90 percent of processing capacity, as well as the ability to make magnets, while the U.S. has large, rare earth reserves in California and Alaska but no plants to refine the ores into usable materials. Even America’s largest producer, MP Materials, shipped raw concentrates to China until just recently, when it opened its first U.S. refining and magnet facility in Texas to serve EV and defence customers.

China has shown a willingness to weaponize this leverage: In 2023, it restricted exports of gallium and germanium (which are vital to semiconductors) in response to U.S. chip restrictions; by 2025, its licensing regime had already decimated supplies of medium and heavy rare earths, and experts fear that if Beijing were to expand controls to light rare earths, such as neodymium (which is found in EV motors, turbines, and consumer electronics), the disruption could be even greater. For now, restraint is a matter of strategic calculation, not weakness..

A Global Ripple Effect

The rare earth squeeze was not limited to the U.S. Europe has been even more reliant on Chinese rare earths, with more than 90 percent of its magnets coming from China, leading the EU to co-fund its first major magnet plant in Estonia in 2025, and Japan and India remain extremely dependent, with Indian firms suffering delays in shipments during the crisis. Even U.S. allies such as South Korea and Japan, which are significant suppliers of semiconductors and batteries, are subject to Chinese controls, a ripple effect that reflects a wider reality: rare earths are a common weakness among advanced economies, and any Chinese curbs resonate around the world.

Industry and Policy Responses

New efforts were prompted by the crisis, but solutions are long-term. In the U.S., MP Materials expanded refining, and startups like Phoenix Tailings developed recycling methods with the backing of investors including BMW, while Australia’s Lynas and Iluka expanded projects, and Brazil, South Africa, Japan, and Vietnam sought to add capacity. But all are hampered by the same realities: new mines and refineries take years to invest in, require skilled labour, and take political will.

The policy side saw the Pentagon commit to having a full “mine-to-magnet” supply chain in place for defence by 2027, but shortages of engineers, lack of commercial incentives, and decades of hollowing out industrial capability remain challenges. Washington has looked to partnerships, such as the MP Materials joint venture with Saudi Arabia’s Ma’aden, closer relationships with Australia’s Lynas, and arrangements with Japan and the UAE. The same sense of urgency is reflected in the Estonia project in Europe. Yet stockpiling or partial supply deals are stopgaps, not solutions, at least in the near term.

Current Scenario

This week witnessed the most dramatic escalation in US-China trade tensions since the renewed tariff wars began in 2025. On October 10, China expanded its rare earth export controls to cover 12 out of 17 critical elements, requiring export licenses for any foreign company using products containing more than 0.1% Chinese rare earths, effectively extending Beijing’s control beyond its borders to global supply chains. President Trump retaliated within 24 hours, announcing additional 100% tariffs on Chinese imports (bringing total tariffs to 130%) set to take effect November 1, while threatening export controls on critical software. The escalation sent shockwaves through global markets, with Asian stocks plummeting and US markets recording their worst performance since April. Despite Trump’s weekend attempt to calm markets with reassuring posts, both sides maintain hardline positions while keeping diplomatic channels open for potential talks before the November 1 deadline.

Strategic Takeaway and the Road Ahead

From China’s celebrated 660% increase in rare earth exports in June to this week’s dramatic escalation, the fundamental illusion of America’s strategic recovery is exposed. A “miracle” of 353 metric tons of rare earth magnets exported by China in June was heralded as proof of robust supply chains and effective diplomacy. Yet, China’s increased export restrictions on 12 rare earth elements and Trump’s retaliatory 130% tariffs show that recovery for what it was: a short-term reprieve provided by China rather than true American independence.

A deeper strategic vulnerability that has now been weaponized with previously unheard-of sophistication was concealed by the 660% increase. Beijing’s new controls effectively globalize its influence by extending them beyond direct exports to any foreign company using products that contain more than 0.1% Chinese rare earths. From the crude supply cutoffs of early 2025 to a surgical tool that can stifle competitors while maintaining a plausible regulatory cover, this is an evolution. Nothing fundamental about America’s 90% dependency was resolved by the June recovery, as evidenced by the speed at which markets fell this week, echoing but surpassing the panic of the initial crisis.

The current crisis is likely to follow the June pattern, which consists of intense pressure followed by tactical retreats, but each cycle will be more severe as China’s leverage increases. As the “just-in-time” globalization era for critical materials draws to a close, substantial investment is being made in alternative supply chains, which will take five to ten years to drastically reduce dependencies. As China exploits its monopolistic position during this unstable transition, expect frequent crises, each one getting more complicated than the last.

Conclusion

The 2025 rare earth crisis is a powerful example of the limitations of economic nationalism in the absence of economic independence, from June’s false dawn to October’s harsh reality. The stark contrast between the October market panic and the June headlines celebrating a 660% increase demonstrates the dangerous complacency that permeates American strategic thinking. The recovery was largely due to Chinese restraint rather than American strength.

The underlying lesson is sobering: in a globalized world where essential resources flow through monopolistic chokepoints, spectacular recoveries can quickly transform into spectacular vulnerabilities. The 660% increase that seemed to encourage diplomatic engagement, creating the sense that the problem could be resolved, made this week’s crisis possible.

Contributors

Article: Tripti Joshi, Suvam Srivastava
Illustration: Gunjan Verma