The Bayan Obo mine is an open-pit operation where thousands of workers labor around the clock. The first discoveries were made in the 1930s, but it wasn’t until the past few decades that extraction took off in earnest. “The Middle East has oil, but we have rare earths,” party elder Deng Xiaoping is said to have remarked in 1992.
Last year, China produced around 70 percent of the world’s rare earth elements (REE). In addition, the country accounted for nearly 90 percent of the refined production—a process that requires technical expertise and major investments. Now, while the world reels from Donald Trump’s recklessness, China is using its REE dominance to put pressure on its adversaries, especially the United States. When Trump took office in January this year, he gave the impression that China would be an easy match. But when the Chinese retaliated against Trump’s sky-high tariffs by reducing their REE exports, the tone changed. Americans with insight and analytical skill naturally foresaw this. But Trump wouldn’t listen, because—as the self-declared genius—he knew best.
The confrontation ended with a compromise: Trump lowered the tariffs, and China resumed exports.
We are approaching August 1, the deadline for the U.S.’s ongoing trade negotiations. In Asia, several important countries—among them Japan, Indonesia, and Vietnam—have already reached agreements. The U.S. has also entered into a framework deal with China, but the details remain to be filled in. As this is written, Trump’s Treasury Secretary, Scott Bessent, is negotiating in Stockholm with He Lifeng, one of China’s four vice premiers.
The negotiations will likely end with a statement declaring “new progress.” But the economic and political tug-of-war between the world’s two most important countries has only just begun, and China’s leaders have no intention of backing down. Trump’s daily outbursts signal to them that they are dealing with an intellectually inferior opponent. They also read about the turmoil he has caused in his own country and know he is governing on borrowed time.
This window of opportunity, China intends to use well—first and foremost by delaying all negotiations with the U.S., and second by strengthening its own position step by step. They will also dig deeper into Bayan Obo. According to experts, the known mineral reserves total 44 million tons—enough to keep production going far into the distant future. In aerial photos, the mine appears as a gigantic wound in an otherwise dry landscape. Workers have already dug a thousand meters down—and they plan to go deeper still.
In our modern age, rare earths are an indispensable resource. Without them, most industries would grind to a halt. Many are therefore alarmed by the fact that China has secured an almost-monopoly—and plans to maintain it for years to come. Last year, the U.S. produced a modest 45,000 tons of unrefined REEs, compared to China’s 270,000 tons. Nearly all American production comes from Mountain Pass in California. New mines are being developed, and geologists are working tirelessly in hopes of finding economically viable deposits. But things take time.
While China early on understood the importance of investing in rare earth extraction and refinement, the U.S. was caught napping. Why? Today, blame is flying in all directions. Much of China’s success is undoubtedly due to the one-party state’s ability to think long-term. Priorities aren’t discarded every four or five years. In time, China will face competition from more countries. Brazil, India, and Australia are said to be leading the pack, followed by Russia, Vietnam, and the U.S. The much-discussed Fen complex in Telemark, Norway, is believed to be the largest in Europe, but the government has yet to decide its fate. Europe, in general, is poorly positioned, and the EU still lacks a clear strategy to secure stable access to rare earths.
As for the Americans, they can take comfort in the fact that they possess something China doesn’t: the world’s most advanced AI chips (artificial intelligence). These chips are developed primarily by Nvidia, a company in rapid growth. Although they are produced in Taiwan, these tiny “seeds” are powerful weapons in the U.S.’s tug-of-war with China. But for how long? The fact is, China is catching up in all areas—including this one. In just a few years, the U.S. risks losing its AI lead, while China will retain its firm grip on rare earth production.
This means that more and more countries must prepare to kowtow to China in order to survive in a high-tech age.
“Beijing’s restrictions on rare earth exports have brutally exposed Western nations’ dependence on China,” noted Reuters economics correspondent Andy Home a month and a half ago. “Many are now in panic mode, and several have been forced to halt or reduce critical production.”
In the U.S., manufacturers of cars, airplanes, and defense equipment began to sense trouble, and heavyweight delegations headed to Washington to set Donald Trump straight. They were evidently heard. Before the month was over, the U.S. and China announced that they had agreed to reduce tensions and resume trade in critical goods. Nvidia is still not allowed to sell its most advanced chips to the Chinese—only the second-best ones. But for China, that’s better than nothing.
At the Bayan Obo mine, China’s red flag flutters in the summer breeze. “Welcome to the home of rare earths,” reads the inscription on the arched gate. Foreign visitors have described the man-made crater as surreal. Workers live just kilometers from the dangerous mineral dust, and many suffer from serious health problems. The area is, in reality, an environmental disaster of rare proportions.
But for China, Bayan Obo is about something bigger: winning the most important race of our time.
