Minerals vs microchips: How to stop a supply-chain war

China’s move to weaponize its dominance in rare earths has added a volatile new dimension to US–China relations: a contest defined by mutual vulnerability and supply-chain brinkmanship.

With export controls modeled on America’s extraterritorial tech rules—and licenses required even for products containing trace China-origin inputs—Beijing has shifted the fight upstream, where a few chemical steps can decide the fate of entire industries.

The signal lands before any court does: if Washington can police chips wherever they’re made, China can police minerals wherever they go.

What makes this round different is symmetry. US controls deny Chinese champions advanced nodes and equipment; China replies with leverage over inputs that touch everything from EV drivetrains to precision munitions.

Upstream power punctures the illusion of downstream self-sufficiency. Beijing’s edge isn’t ore in the ground but decades of investment in separation chemistry, magnet manufacturing, and talent—advantages that are hard to copy, even with generous subsidies.

The politics on both sides are jagged. Washington escalates with entity lists and tariff threats; Beijing calibrates licensing and messaging—nationalist one day, conciliatory the next—to show strength while keeping room for a deal. Both capitals talk about resilience, but each is discovering fragility beneath the slogans.

China remains export-dependent and is wrestling with deflationary pressure and property-sector strain; the US faces multi-year timelines to stand up competitive mining, separation, and magnet capacity. Untangling modern manufacturing sounds tidy in speeches and turns messy in practice.

Exposure is systemic, not niche. EVs, wind turbines, industrial robots, data centers—and defense platforms—rely on high-performance magnets whose inputs are overwhelmingly processed in China.

The notion of painless decoupling underestimates the depth of co-specialization built over three decades. Weaponized interdependence punishes the target and the wielder—and pushes everyone else to diversify away from both.

So what’s useful, not performative? First, get honest about time and sequencing. Even with faster permits, “mine-to-magnet” in the US is measured in election cycles. Stockpiles and defense offtakes help, but without multi-year commercial contracts and credible price floors, private capital won’t finance full-scale separation and magnet plants at the pace politicians promise.

Meanwhile, Chinese controls bite quickly because they sit at upstream nodes where small delays cascade across autos and aerospace. Escalation extracts quick pain; diversification delivers slow relief. Strategy must reconcile those clocks.

Second, we need a practical truce for civilian trade while new capacity is built. A bounded, pragmatic deal can stabilize civilian flows while preserving security red lines. A narrow “minerals-for-chips” corridor—reciprocal, auditable, explicitly civilian—could fast-track licenses for autos, consumer electronics, medical devices and grid components, with snap-backs if either party cheats.

Pair it with a standardized “material passport” at customs so declarations are consistent across jurisdictions, limiting the temptation to use licensing as a data-harvesting exercise. This isn’t capitulation; it’s triage while non-Chinese capacity scales.

Third, build real backups where they will actually work. Transparent, sustainable mining outside both countries reduces concentration; multinational licensing consortia with real dispute resolution make approvals predictable; coordinated third-party reserves create buffers against political theater.

These don’t reinvent trade; they create governance legible to investors and credible to voters.

Asia has a special role to play here. Companies in Japan, Korea and Southeast Asia assemble many of the world’s cars, motors, electronics and batteries. They take the hit first when rules change. An Asia-based “escrow lane” could keep essential civilian shipments moving during political flare-ups.

A neutral group could administer this lane with clear carve-outs for medical and grid uses, while a political panel reviews gray areas. This would not replace national laws; it would give factories a dependable way to keep operating when Washington and Beijing are trading barbs. It’s a low-drama fix for a high-drama problem.

Skeptics will say both sides are just calling each other hypocrites: China says the US is acting like a global cop; the US says China is grabbing power. There is truth in both claims. But arguing about blame does not build one magnet, open one processing line or keep one supply truck on time.

If leaders only tighten controls without building alternatives, they create a “volatility tax” on everything from electric cars to hospital scanners. Markets will pass those costs on to families and businesses until real, bankable capacity shows up.

China’s rare-earth move forces everyone to rethink “economic security.” The lesson is simple: using supply chains as weapons hurts the other side, but it also boomerangs back. The smarter path is narrow and practical. Keep civilian trade steady and predictable for now.

Build non-Chinese capacity step by step, with real money and real timelines. Use clear rules so licensing manages risk instead of becoming a political club. In short: design interdependence so it works for people—and stop letting it blow up into one crisis after another that nobody can afford to “win.”

Y Tony Yang is an Endowed Professor at the George Washington University in Washington, D.C.