Filenews 19 June 2025 - by David Fickling
In retrospect, the symbolism of the following moment was prophetic.
On May 15, 2019, President Donald Trump signed an executive order banning U.S. companies from doing business with Chinese telecommunications companies, including Huawei Technologies Co. Five days after that first fierce attack of an emerging trade and technology war, President Xi Jinping was photographed touring a rare earth magnet factory. Such devices, he seemed to hint at during his visit, could be a geopolitical weapon for China, just as powerful as advanced U.S. semiconductors.
Six years later, these battle lines are hardening. In the first major U.S.-China trade dispute of Trump's second term, Beijing managed to use its control over rare earths to force Washington into a deal last week. The magnets produced from them are essential for the lightweight, powerful engines that drive virtually everything from automated car seats to guided missiles. After the first batch of U.S. tariffs in April, China began restricting export licenses, prompting U.S. manufacturers to warn of impending shutdowns.
"ALL MAGNETS AND NECESSARY RARE EARTHS WILL BE GIVEN, IN ADVANCE, BY CHINA," Trump said in a social media post on Wednesday, announcing the finalization of the trade deal.
Behind this stormy statement and the capital letters, however, there is a worrying note of desperation. America was caught asleep.
Beijing's response to its exclusion from the microprocessor ecosystem has been an all-out effort to bridge the technology gap. State-owned semiconductor manufacturer Semiconductor Manufacturing International Corp. has allocated $33.5 billion in capital expenditures and $4 billion in research and development (R&D) as of mid-2019. Huawei spends 180 billion yuan ($25 billion) on R&D every year, founder Ren Zhengfei said in a recent interview. Just 12 months ago, the government created a separate $47.5 billion semiconductor investment fund.
The fortress of American chips still looks quite resilient, barring the unexpected – see DeepSeek. Although Huawei is reportedly developing a 3-nanometer chip to match the most advanced non-Chinese processors as early as next year, Ren said its best plans are still "behind the U.S. by a generation."
One of the lessons of asymmetric warfare, however, is to exploit your enemy's weaknesses, rather than trying to compete with his forces. And this is where rare earths come in.
A technological conflict is just a disguised version of a real battle. As Chris Miller explains in "Chip War," 2022, the U.S. advantage in semiconductors was a critical factor in victory in the Cold War. By making the processing power incredibly light and utterly reliable, it allowed America to build a much more menacing military machine. Cruise missiles guided by tiny embedded computers could destroy targets with great accuracy, making them more lethal than Soviet missiles that often deviated from their course.
Rare earth magnets promise to replicate this revolution of processing power in mechanical power, making motors smaller, more powerful, cheaper and more efficient. It's an innovative leap that can be seen by anyone who has used a $25 drone: Tiny devices exist today only because this new technology (along with the parallel revolution of lithium-ion batteries) allows us to move objects in ways that were previously impossible.
As with cruise missiles in the 1970s, this innovation promises to change the way future wars will be fought. Consider Ukraine's bold drone attack on Russia's bomber fleet earlier this month.
Blinded by the culture wars over the energy transition, America is doing very little to fill this technological gap. Its military needs for rare earth magnets, as we have written, have been almost met at minimal cost. Compared to the hundreds of billions that China pours into chips, the Pentagon has built up a rare earth supply chain since early 2020 with $439 million in grants and loans.
Even worse, lithium-ion batteries fall victim to politics. The looming elimination of Biden-era clean energy subsidies and the subsequent collapse of the electric vehicle supply chain could reduce the production capacity of U.S. battery manufacturers by about 75% by 2030. That would cut off almost every new factory that isn't already under construction and leave the country with production capacity that would power just one-fifth of annual car sales. America will be even more dependent on China, both for car batteries and for the more critical specialized applications of lithium-ion technology.
In the golden age of semiconductors, the U.S. instinctively knew that its strength as a great power lay in its determination to remain at the forefront of innovation. But when state power forces technology to submit to ideology, the consequences can be catastrophic. This is the path the U.S. is taking, letting China take the lead in rare earths, solar panels, lithium-ion batteries, and other "clean" electric technologies of the future.
If U.S. troops find themselves on some future battlefield without the critical minerals and batteries with which to counter the swarms of drones deployed against them, then they will surely regret the day Washington turned its back on the future.
Rendering – Editing: Lydia Roubopoulou
