China weaponized its dominance over rare earth magnets to push back against Trump’s tariff escalation, choking global supply chains and forcing the U.S. back to the negotiating table.

As the U.S. raised tariffs to 145%, China retaliated by suspending exports of critical rare earth magnets—materials vital for everything from EVs to F-35 jets. Companies like Ford, Suzuki, and Tesla reported production disruptions. Elon Musk revealed that China’s magnet curbs had hampered his robotics projects.

“Everyone is impacted by it,” said Rowena Smith, CEO of Australian Strategic Materials, whose phones were “running hot” with global clients scrambling for non-Chinese supplies.

Beijing Turns Licenses Into Strategic Leverage

Beijing’s move wasn’t a blanket ban but a calculated slowdown through strict export licensing, targeting magnets with even trace amounts of seven rare earth elements. This bottleneck was enough to stall production globally, affecting not only auto firms like Volkswagen and ZF Friedrichshafen but even battlefield drone supply chains in Ukraine.

Hebe Chen of Vantage Markets called the strategy a “negotiating shift,” adding, “China weaponized its rare earth dominance.”

U.S. Forced to Backpedal After Supply Chain Squeeze

Facing global pressure and industry panic, Trump shifted tone and struck a new deal with Xi Jinping. On June 11, he announced, “FULL MAGNETS, AND ANY NECESSARY RARE EARTHS, WILL BE SUPPLIED, UP FRONT, BY CHINA.” The pact, signed in London, rolled tensions back to pre-escalation levels.

But key trade restrictions remain. While China issued permits to companies like JL Mag Rare-Earth Co., officials admitted the license framework gives Beijing detailed insight—and future leverage—over every exported kilogram.

Strategic Wake-Up Call for the West

The crisis underscored how ill-prepared the West remains in rare earth independence. Mines are scarce, processing is polluting, and skilled labor is limited. Even with massive investment, alternatives will take a decade.

“China played the card of the rare earths very well,” said Steve Brice of Standard Chartered, warning the world that Beijing’s grip will be “a sword of Damocles” in future disputes.