China’s Ace, America’s Achilles’ Heel: Is Rare Earth the Key to the U.S.-China Tariff Cut?

TradingKey – The first round of U.S.-China economic and trade talks concluded with both sides agreeing to significantly cut tariffs — a move officially justified by the importance of bilateral trade relations for both nations and the global economy. However, behind the scenes, strategic industries, supply chains, and particularly China’s control over rare earth exports may have played a decisive role in shaping the outcome.

After two days of negotiations over the weekend, on May 12, China and the United States jointly announced a temporary reduction in tariffs by up to 115 basis points. China lowered its tariff on U.S. goods from 125% to 10%, while the U.S. cut its tariff on Chinese imports from 145% to 30%.

U.S. Treasury Secretary Scott Bessent stated that both sides agreed they do not want to decouple economically. 

Bessent added that a process has now been established between the two countries, emphasising the creation of a mechanism for ongoing dialogue and negotiation.

He also noted that the U.S. plans to continue its “strategic rebalancing” in sectors exposed as vulnerable during the pandemic, including pharmaceuticals, semiconductors, and steel. The administration has identified five to six critical industries and supply chain weaknesses, aiming to achieve greater self-reliance or secure reliable supplies from allies.

Prior to the talks, insiders revealed that in addition to proposing tariff reductions, President Trump intended to push China to lift restrictions on rare earth exports — a key area of leverage.

China controls the majority of several critical rare earth elements, which are vital for manufacturing high-tech products such as electric vehicles and fighter jets. In early April, China imposed export controls on seven rare earth elements and permanent magnets — materials essential for advanced industrial production.

A mining industry insider commented that the idea of rare earths being used as a strategic threat against the U.S. has indeed changed the mindset across American businesses. 

From government officials to traders and automotive executives, there is growing awareness that U.S. rare earth reserves can only support domestic needs for three to six months, after which serious supply chain disruptions could occur.

Analysts at the time pointed out that the U.S. faces two options: endure supply chain disruption or negotiate with China. “China went for our deepest vulnerability,” one analyst remarked. “They didn’t go for the one that we’re highly vulnerable in, just the one we’re completely vulnerable in.”