Al Root

China just played another of the tariff cards it holds in the escalating trade war with President Donald Trump. It's the rare-earth metals one.

Beijing is restricting exports of the metals, which are critical for electric vehicles, smartphones, and a host of other technologies.

The move sent U.S.-based MP Materials soaring, up 24.3% in late trading. The S&P 500 and Dow Jones Industrial Average were up 1.2% and 1.1%, respectively.

MP is the largest rare-earth producer in the Western Hemisphere, making neodymium and praseodymium oxides -- two of more than a dozen. Included in the list are yttrium and lanthanum, which are key for high-tech products in both the civilian and military worlds.

These metals are considered rare because they are, of course, tough to find and refine, but also because they aren't used a lot relative to other materials.

About 390,000 metric tons of rare-earth oxides were mined in 2024. By comparison, the total for copper and steel amounted to about 27 million tons and almost two billion tons, respectively.

China is the global leader in rare-earth minerals. It mines about 270,000 tons, compared with about 45,000 tons by the U.S. China also dominates the refining -- about 85% of total capacity.

A lot of MP's ore ends up being refined in China. But MP is ramping up its refining capacity; today, it processes about 40% its concentrate.

"We now also commercially produce neodymium-praseodymium metal in our new Fort Worth, TX factory," said the company. It's the "first time this has been produced in the U.S. in a generation."

Some of that metal will go to General Motors for magnets in EV motors.

If there is an upside to China's rare-metals move, it's that China has done this before -- and the U.S. has responded.

China threatened export restrictions in 2019, during the first Trump administration. Before that, in 2011, China slashed export quotas on rare earths from 31,310 metric tons to 14,446.

The threats had an unintended consequence. They boosted U.S. production. In 2010, before the Chinese export scare, U.S. production of rare earth ore was zero.

Companies have also adjusted. In 2023, Tesla CEO Elon Musk said his company was using 25% less rare earth metals than in 2017. Tesla is also designing motors that don't use any rare-earth metals.

Musk weighed into the rare earth debate on Monday. "People understandably tend to think that rare earth mineral deposits are what's scarce, given the name. That is false. They're everywhere," Musk said on X. "As with lithium, what China has that others lack is the heavy industry of refining the minerals." ( Lithium is a key component in EV batteries.)

However, some mining and refining capacity outside of China doesn't take away China's leverage. Given its market share, it has the ability to produce below anyone else's cost of production, says Michael Silver, CEO of American Elements .

His firm produces tens of thousands of products for some the largest companies on the planet, including Tesla, Samsung, and Microsoft.

Overcoming China's dominance could mean long-term support for domestic industry. Silver would prefer to see negotiated trade deals honored. Commodities are a little different than manufactured goods. A lot of the time, they depend on "plate tectonics," he says, meaning the best, lowest-cost commodity deposits aren't distributed evenly among the world's countries.

He doesn't envision his customers having trouble through 2025. There is time for negotiation.

That makes rare-earth exports a watch item for investors. China has used this negotiating tactic before. Maybe it's one that can get the second Trump administration to refine its stance on tariffs that have roiled global stock markets.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

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April 14, 2025 15:16 ET (19:16 GMT)

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