Has China just won the next war without firing a shot?

With the stroke of a pen, Beijing has decided which nations can build hi-tech components. And those who cannot.

It’s cut its exports of rare earth minerals and permanent magnets.

That’s an economic Pearl Harbour for US President Donald Trump’s global trade war. And a blitzkrieg against almost all Western economies.

But is Australia destined to become the world’s industrial bastion?

“It’s particularly difficult to see a world where the United States and its allies strengthen access to secure rare earth supply without Australia,” warns critical minerals analyst Gracelin Baskaran of the Centre for Strategic and International Studies (CSIS).

“Rare earths are the critical choke point where geopolitics collides with industrial fragility.”

The economic battle lines have been set.

“This shift is urgent because the contest is not abstract, nor limited to theoretical risk. It is already playing out in real time through price spikes, production delays, disrupted service chains, and exposed weaknesses in US weapons platforms,” argues New Delhi think-tank analyst Rahul Pandey.

China accounts for about 70 per cent of rare earth mining, 90 per cent of its processing, and 90 per cent of magnet manufacturing. In direct terms, this accounts for about 80,000 components across 2000 different US weapons (equating to about 92 per cent of all US Navy systems).

At the core of this crisis are just seven minerals - samarium, gadolinium, thorium, dysprosium, ruthenium, scandium, and yttrium. But their specific properties offer vital efficiency in crucial electronic components.

Their supply to the US and Western economies will be turned off on December 1.

But factories building F-35 stealth fighters, nuclear attack submarines, Tomahawk cruise missiles, and Teslas are already grinding to a halt.

“Since Trump imposed ‘Liberation Day’ tariffs in April and China enacted retaliatory restrictions, the auto industry and supply chains have faced slowdowns and production halts directly linked to the rare earths embargo,” explains Mr Pandey.

US President Donald Trump is headed to South Korea for talks with China’s Chairman Xi Jinping later this month. Now his already bruised poker hand has just got a lot worse.

“At the tariff table, China’s hand is as strong as the United States’ hand, and in the game of supply chain poker, China holds the high cards,” says Harvard Kennedy School professor of government Graham Allison.

“Before going head-to-head with Beijing, Trump failed to ask: Who is the sole supplier of almost all the rare-earth magnets that power almost all the electric motors and literally thousands of other vital items, without which the US economy and military cannot function?”

And that may deliver Australia a winning hand when Trump meets Australian Prime Minister Anthony Albanese on October 20.

Poker-faced Trump dealt a 72 offsuit

“You’ve got to know when to hold them, know when to fold them, know when to walk away, and know when to run.”

So sang Kenny Rogers in his 1978 release, The Gambler.

“So, which should Trump do now?” asks Professor Allison.

“In fairness to Trump, he wasn’t dealt the strongest hand.”

Trump, 79, entered his term as the 47th President with a poker face - staring down the world with arbitrary and steep trade tariffs in retaliation for what he called unfair balances of trade.

But Chairman Xi had long since telegraphed his own moves.

More than a decade ago, Beijing choked Japan’s economy by blocking rare materials exports in retaliation for the arrest of a Chinese fishing captain caught intruding on territorial waters.

In 2014, Xi went on to detail his ambition to leverage China’s rapidly expanding economy on the world stage.

In 2020, he declared his desire to “tighten international production chains’ dependence on China,” and create “a powerful countermeasure and deterrent capability against foreigners who would artificially cut off supply to China”. That’s the same year Beijing imposed harsh restrictions on Australian wine, barley, beef, seafood, coal and cotton - among others.

Trump missed all the cues.

Now he’s left holding a calamitous fistful of cards.

But he’s not backing down on his bluff.

“I was to meet President Xi in two weeks, at APEC, in South Korea, but now there seems to be no reason to do so,” he stated on his personal social media platform Truth Social over the weekend.

“There is no way that China should be allowed to hold the World ‘captive,’ but that seems to have been their plan for quite some time, starting with the “Magnets” and, other Elements that they have quietly amassed into somewhat of a Monopoly position, a rather sinister and hostile move, to say the least.”

In the post, Trump insists: “Dependent on what China says about the hostile ‘order’ that they have just put out, I will be forced, as President of the United States of America, to financially counter their move. For every Element that they have been able to monopolise, we have two…”

But the US economy is rapidly falling behind that of China.

A 2024 UN report projects China will account for 45 per cent of global manufacturing, as against 11 per cent by the United States. That’s against 25 per cent for the US and six per cent from China in 2000.

“Trump may want to break China’s monopoly, but it appears to be too late,” Professor Allison observes. “There is no easy way to eliminate vulnerabilities created by US reliance on China for vital items. Indeed, that was reportedly his major takeaway from the shock that the US economy experienced when Xi stopped exporting magnets.”

Xi’s Royal Flush

The first, and most dramatic, impact will be felt by Western defence manufacturers.

Radars, drones, precision ammunitions … entire submarines.

“The United States is already struggling to keep pace in the production of these systems,” warns CSIS’s Baskaran.

“Meanwhile, China is rapidly scaling up its munitions manufacturing capacity and acquiring advanced weapons platforms and equipment at a rate estimated to be five to six times faster than that of the United States.”The Chinese Ministry of Commerce’s Announcement No. 61 of 2025 is blunt.

Foreign firms must obtain Communist Party approval before they can export any magnet or semiconductor containing even 0.1 per cent of heavy rare earth elements sourced from China. And any export involving AI or semiconductors will be reviewed on a case-by-case basis.

But it’s not an unusual move.

The US has itself used the Foreign Direct Product Rule (FDPR) to control the export of sensitive and strategic items since the 1950s. That now includes semiconductors and advanced AI technology to China. Any foreign-made product cannot be exported to China if it incorporates US-patented technology, software or equipment.

But Beijing’s rare earth materials are crucial for everything from solar panels and wind farms to televisions, mobile phone towers, internet-of-things communications, computers and cars.

In addition, Beijing has now declared that any company linked in any way to foreign militaries will be denied export licences.

“The Ministry of Commerce made clear that any requests to use rare earths for military purposes will be automatically rejected,” Baskaran warns. “In effect, the policy seeks to prevent direct or indirect contributions of Chinese-origin rare earths or related technologies to foreign defence supply chains.”

US and European arms manufacturers are already struggling to replace ammunition and equipment expended in Ukraine to resist Russia’s invasion.

“The new restrictions will only deepen these vulnerabilities, further widening the capability gap and allowing China to accelerate the expansion of its military strength at a faster pace than the United States at a time when tension is rising in the Indo-Pacific region,” Baskaran concludes.

Can you dig it?

“The global rare earths contest foreshadows a world where resources and regulations outweigh overt military confrontations,” predicts Mr Pandey. “Supply chain vulnerabilities, once a technical question for manufacturers, are now central to national strategy.”

The world is dependent on China supplying rare earth materials.

China’s in a position to pick and choose who gets them.

In a world of market forces, it’s winner takes all.

Until a new game is started.

“The consequences of inaction are not just expensive, but existential: a military unable to guarantee supply, an economy vulnerable to market manipulations, and a diplomacy weakened by invisible constraints,” argues Pandey.

Rare earths aren’t hard to find.

They’re just very diluted, making them difficult, dirty, and expensive to extract.

In fact, they’re often hauled out of the ground alongside big-name minerals, including copper, uranium, nickel and iron ore.

It’s just that they end up dumped in the nearby tailing mounds.

Extracting them is energy-intensive. And polluting. Faced with the raw economics of investment versus returns, rare earth minerals find themselves low on the corporate quick-profit priority list.

But the Chinese Communist Party’s policy of enforcing state ownership and controls over its strategic resources and essential services industries is paying off.

These have just one shareholder: Xi Jinping.

Now, President Donald Trump is taking a page out of the Communist Party’s playbook.

Corporate welfare is being extended to companies willing to mine and refine rare earths in the US. And the Department of War is pre-committing to buy 100 per cent of all produce at premium prices.

But not all blockaded rare earths are available in US soil.

Baskaran notes Australia possesses 44 of the 55 critical elements identified as under threat by the US Department of Energy.

“Australia stands as perhaps the United States’ most indispensable ally in the quest for mineral security, with unmatched geological endowments, world-class mining expertise and a regulatory system trusted by global investors,” Baskaran concludes. “Simply put, achieving resilient and secure supply chains without Australia is impossible.”

Australia accounts for almost half of global rare earth exploration with 89 projects in total, compared to 18 in Canada, 13 in Brazil and 12 in the United States.

“We can see how critical this is for our friends, partners and allies around the world,” Australian ambassador to the US Kevin Rudd told Baskaran in a recent podcast. “But the PM has also decided that, in order to demonstrate our good faith, we need to put our money where our mouth is. So there is something like an $US18 billion investment on our part in terms of securing projects for the future.”

But Australia has recently been afforded the same status as a domestic supplier of many of these materials by the White House. And is hoped to ease the flow of urgent US investment in Australian infrastructure.

“We stand ready to work with the United States in the development of its strategic reserves in, shall I say, the top tier critical minerals and rare earths, which are of most fundamental significance to US defence needs right now,” Rudd adds.