China Targets the U.S. Rare Earth Comeback

The short pause in U.S.-China minerals warfare is over. The May 2026 Trump-Xi summit in Beijing raised hopes of extending the critical minerals truce that began at the October 2025 Busan summit, where China partially suspended rare earth export controls for one year. Five weeks after the Beijing summit, on June 22, Beijing ended the pause by adding two American rare earth companies, MP Materials and USA Rare Earth, to its export-control blacklist. These companies are the largest recipients of U.S. federal investment in rare earth independence, having received $550 million and $1.6 billion, respectively.

Both firms have moved away from direct Chinese supplies. But China’s extraterritorial controls prohibit any entity anywhere from transferring Chinese-origin inputs to blacklisted firms — a provision that reaches deep into allied supply chains given China’s rare earth processing dominance. Whether or not Beijing enforces that prohibition, the legal uncertainty it creates could chill investment in alternative suppliers.

China’s Actions Bite

China refines roughly 85 percent of the world’s rare earth elements, materials essential to precision-guided munitions, electric vehicles, wind turbines, and radar systems. That dominance has already been weaponized. For instance, yttrium — a rare earth element used to coat jet engine turbines — fell from 333 tons shipped from China to the United States in the eight months before April 2025 to just 17 tons afterward — a 95 percent collapse. Aerospace manufacturers are rationing yttrium and warning of potential production pauses. Even as U.S. and G7 manufacturers find ways to adapt, the disruption bites.

The Legal Architecture of China’s Economic Warfare

China has been steadily building the legal architecture behind its export controls for six years. Beginning with the 2020 Export Control Law, Beijing has layered dual-use designations, extraterritorial transfer prohibitions, and expanded licensing requirements into a unified enforcement framework. Adding MP Materials and USA Rare Earth to its export blacklist represents a deliberate escalation of that architecture — and a logical one: China had already restricted rare earth exports to U.S. defense entities, and MP Materials counts the Pentagon as a major investor. Notably, the blacklisting came two weeks after the Pentagon released an updated list of Chinese companies designated for their ties to China’s military — a sequence consistent with Beijing’s pattern of tit-for-tat retaliation.

Ambiguity as a Weapon

It is not clear that China will enforce its extraterritorial controls against third-country suppliers, and neither MP Materials nor USA Rare Earth has reported immediate operational disruptions from the blacklisting. Chinese enforcement of extraterritorial controls would mean that countries like Australia, Brazil, and Malaysia would have to choose between their Chinese supply relationships and their U.S. partnerships — a costly escalation Beijing may not need to take. Third-country businesses weighing investments in U.S. rare earth supply chains must now factor in the mere possibility of Chinese retaliation, which could chill investment in alternative suppliers.

From Pause to Action: The U.S. Response

Washington should treat China’s rare earth export controls as economic warfare. Business as usual is not an adequate response.

The U.S. International Development Finance Corporation (DFC) has the authority to finance allied rare earth mining and processing capacity and has deployed capital — including commitments to an investment vehicle and an extraction project in Brazil. But overall new DFC commitments collapsed from nearly $12 billion in fiscal year 2024 to just $3.5 billion in fiscal year 2025 due to staffing shortages and disruption driven by the Department of Government Efficiency. Congress recognized persistent talent constraints in its December 2025 DFC reauthorization, introducing expanded hiring authorities to attract industry expertise. Whether the administration uses those new authorities to staff up will determine whether the reauthorization means anything.

Meanwhile, the State Department has not developed a systematic approach to deploying its expansive foreign assistance funding toward allied critical mineral capacity — despite the obvious mutual benefits for the United States and host countries alike. Allied countries want to build mining and processing capacities. What is missing is a U.S. assistance strategy for overcoming China’s price and risk manipulation in these markets.

Daniel Swift is a senior research analyst for the Center on Economic and Financial Power at the Foundation for Defense of Democracies. Daniel is a retired U.S. diplomat who served in Burma from January 2015 to August 2019. Follow FDD on X @FDD. FDD is a Washington, DC-based, nonpartisan research institute focusing on national security and foreign policy.