Imagine the China-U.S. trade war as two opposing armies exchanging bursts of gunfire, one volley after another. Responding to China’s unfair trade practices, the United States imposed tariffs on a broad range of Chinese exports. In turn, China restricted rare earth exports necessary for American automotive and defense manufacturing. The U.S. retaliated by freezing jet engine sales, technology that China can’t find anywhere else.
Then came a lull. In June, President Donald Trump announced that China would resume exports of rare earths, in return for the U.S. providing China with the student visas it wanted. Subsequently, the U.S. and China announced a formalized agreement to resume Chinese heavy rare earth exports, while the United States will resume jet engine, software, and ethanol exports.
But this isn’t a truce. It’s only a ceasefire in a trade war that is likely to erupt again and again in the coming years. China left its growing infrastructure for export controls in place: rare earth export licenses require sensitive information disclosures and only last for six months. And once the trade war breaks out again, the United States may find that China has more ammunition than it does.
To accumulate this much industrial leverage over the U.S., China played the long game. The U.S. should take this pause in the trade war to begin doing the same.
As China grew to become an industrial superpower over the last three decades, it encouraged other manufacturing countries, particularly the U.S., to rely on it as the primary supplier for dozens of critical minerals. The dependence is even more stark in rare earths: China’s export licensing regime caused U.S. imports of high-performance magnets to fall by 93 percent.
This adds up to Chinese leverage in the short, medium, and long term. Right now, it can choose to cut off access to minerals and slow the pace of U.S. reindustrialization. The short-lived rare earth restrictions already forced a Ford plant to halt production, and the company, like many other carmakers, is scrambling to find a supply of magnets. In the coming months and years, this dynamic could force manufacturers to move American industry to China, if that remains the only way of accessing strategic materials. More than just slowing reindustrialization, China’s export controls could cause further deindustrialization in the U.S.
Over the long term, China’s intent is clear: keep the rest of the world hooked on Chinese raw materials. As long as the United States’ most essential commercial and military products rely on Chinese strategic materials, the U.S provides Beijing with an informal veto over American foreign and domestic policy.
Absent U.S. action, this dynamic won’t change. The U.S. can’t afford to sit by while China begins to exert the leverage that it has built up over the last few decades. The U.S. response should similarly be framed over short-, medium-, and long-term goals.
The United States’ immediate need is to retain access to strategic materials from China and keep the manufacturing base alive. This is why Trump’s agreement with China was so important: the U.S. can’t reindustrialize without using Chinese raw materials in the near term.
But now with temporary access, the medium-term goal must be developing alternative supply chains to meet the United States’ military and commercial industrial needs. Time is an imperative: the search for a perfect set of critical policies induces a costly paralysis. Policymakers need to acknowledge trade-offs. In some cases, this means trying out a range of programs, some of which will ultimately fail.
Now that the Senate has passed Trump’s One Big Beautiful Bill, there’s a wide-open space for consequential policies. Undoing the theory that developing the electric vehicle supply chain would boost critical mineral resilience, the bill repeals EV subsidies and sunsets provisions of the advanced manufacturing tax credit. But the bill leaves the door open to new investment by allocating billions for critical mineral and industrial base financing. That funding needs to flow to effective programs.
The United States’ long-term goal should be independence – not from the rest of the world, just from China. On some level, the American people recognize this. Between 1990 and 2020, the American public went from thinking of China as a Japan-type competitor to a Soviet Union-like threat. But over that period, the scale and character of U.S. trade with China remained much closer to that of Japan than the Soviets. A fundamental readjustment of the United States’ trade patterns with China isn’t just necessary, it’s long overdue.
To that end, the United States should play both defense and offense in trade. Defensive measures insulate the U.S. from the Chinese supply shocks and unfair trade practices that contribute to the forcible deindustrialization of the American heartland. Offensive strategies would increase the number of technologies that China relies on the U.S. for, gradually rebalancing leverage away from Beijing.
The Department of Defense’s recent investment in MP Materials, a U.S. rare earth producer, offers a roadmap for the future. The terms of the deal include $400 million equity investment from DOD, more than $1 billion in public-government loans to construct new processing facilities, and establishing a price floor for MP’s rare earth output. In the intervening days, Apple and MP announced a $500 million commitment to purchase magnets and develop a recycling plant in Texas.
With DOD and other government agencies leading the way in investment, offtake agreements, and permitting, U.S. firms will help adjust the supply and demand constraints necessary for developing a fully integrated domestic supply chain. While the specifics will vary from mineral to mineral, deals like these will be the way forward.
But if the U.S. does nothing to shift this balance of power, China will always be able to use the leverage that it built up over the past few decades. China could use access to raw materials to stop us from imposing further restrictions on advanced technologies, or even force the U.S. to loosen advanced technology transfer restrictions. The United States would be able to do little about it.
In gray-zone economic warfare, trade leverage becomes its own kind of armament. The United States should arm itself aggressively to pursue strategies that take ammunition away from the Chinese. When that next round of trade war sniping breaks out, the U.S. will want more firepower than it has now.