Rare Earths and the New Trade War - Why the Next Global Shortage Could Hit Straight Home

Rishi Teja
Oct 21
5 min read

Everything from your smartphone to your car to the satellite allowing you to read this article all have one thing in common, a healthy serving of rare earth minerals mostly mined in, you guessed it, China. As fears grow over China abusing this geographical advantage to control complete supply chains, a new kind of trade war has emerged. One which could affect every single person who uses any kind of technology associated with the United States.

So what exactly are these rare earth minerals that everyone seems to be worrying about? Essentially, they are nothing but elements from atomic number 57 to 71. They are called rare earths but that is actually a misnomer, as they are not actually scarce but just very difficult to isolate and purify. Generally appearing in compounds and spread out in trace impurities, over 44 million metric tons lie in China. China also accounts for 69.7% of the world's processing capability for rare earths. This means that they already control the first half of the world's rare earth supply chain. The most important rare earths which are used in key industrial applications are germanium and gallium. China has over 60% of the world's germanium and 80% of the world's gallium.

Ever since Trump's first term in 2018 America has been engaged in an intense trade war with China, with Trump aiming to bring back manufacturing on shore in the interest of national security. Although most of the tariffs are currently on a pause till November 10 ^th 2025, Trump has recently announced an additional set of tariffs worth 100% as China looks to impose new export controls on rare earth minerals. These moves could push effective tariffs higher than 130% in some sectors.

With the global rare metals for semiconductors market being valued at around 1.02 billion dollars, the semiconductor industry is the one which is going to take the biggest hit from these hostilities. Although Taiwan claims limited dependence on China with most of their rare earth imports coming from Japan, Europe and the USA, other key players are far more exposed. South Korea for example imports around 80% of their rare earths from China directly. Even America still relies on China heavily with over 70% of their imports in between 2020 and 2023 coming from China.

Beyond semi-conductors the list of affected industries still runs long. Auto manufacturing depends heavily on neodymium for electric motors, while EV batteries require various rare earth compounds. Most modern cars also make use of semiconductors in their chips creating another vulnerability. For example the image below shows the supply and demand for NdPr which is a rare earth used to make magnets. As we can see the automotive industry relies heavily on these rare earths for the engines.

The aerospace sector also relies heavily on rare earths to produce advanced radar systems, jet engines, and even missile guidance technology. Almost all consumer electronics depend on semi-conductors so they will also be affected by any disruption in the semiconductor supply

Now coming to the most important question, are these tariffs actually viable? When a single country owns 70% of the world's processing capability and up to 50% of the world's reserves, can tariffs really make a difference without drastic negative impacts?

Tariffs are designed to make foreign goods more expensive, hence encouraging domestic production. This might work for traditional goods but with rare earths there is no easy substitute. The US can't simply decide to only “Buy American” because there is not enough domestic or non-China global production to cover everyone's needs. So, the cost of the tariffs at the end of the day will come down to the manufacturers and then the end consumers.

From a policy standpoint tariffs seem to be a popular tool with the current administration because they seem grand and decisive, but in situations where the supply chain is incredibly complex and sensitive this can be impractical. They may encourage some domestic production, but the adverse effects caused by the price hike to not only manufacturers but also the end consumers would be devastating. In fact a new Goldman Sachs analysis says that American end consumers will be bearing 55% of the costs from Trump's tariff spree.

So, if tariffs can't solve the issue what can? One of the most obvious outs is just diversification. Australia has been seen as a key contender in this space. Possibly with the ability to fund the Chinese deficit for rare earths. While Australia has reserves worth around 5.7 million metric tons which could possibly fuel the US and her allies there is the key issue of processing.

Around 90% of Australia's lithium for example goes through China for processing as they do not currently possess the infrastructure for such large-scale operations.

While projects to expand rare earth processing infrastructure are currently ongoing, Australia may not be able to meet US demand at the current pace of tariff escalation.

So how is all this going to affect you, the average consumer. Let's start with a throwback to the semi-conductor shortages of 2020. During the pandemic we all saw how fragile the semiconductor supply chain really is, completely breaking down as soon as trade routes closed.

Cars were delayed for months, electronics vanished from store shelves, consoles like the PlayStation 5 were being resold for thousands of dollars above retail. In fact there was an estimated 210 million dollars worth of lost revenue in just the automotive industry alone.

Now imagine a similar situation but with all rare earth supply chains being choked at once. A shortage wouldn't just slow down a few sectors relying on semiconductors but create ripple effects all across the world. Everything from electric vehicles and smartphones to even defence systems and equipment. With inflationary pressure in the US already high and reports of the inflation rate having risen to 2.9% in August because of the global tariffs imposed by the Trump administration, this move would certainly put America on the edge of a major cost of living crisis.

Rare earths have quietly become the oil of the electronics world, an essential that is controlled by a small majority. As China looks to weaponize their geographical advantage and America tries to gain the strategic upper hand through tariffs, the world watches in suffering as supply chains break down and prices rise.

If policy makers truly want to reduce dependency it is going to be a much longer process of infrastructure expansion and reliable reshoring. It is also going to require a global effort with coordinated investments aiming to expand the mining and refining capabilities of trusted allies. Reducing Chinese dependency is something that is going to take years of planning and execution, billions in investments and unprecedented international cooperation. Anything less and the next trade war will be hitting a lot closer to home, not just being fought in board rooms and policies but in your wallet.

The real question is, In a world built on minerals most people don’t fully understand who truly holds the power? The nation that owns the resources or the one that controls how they are used?