Trade tensions between the U.S. and China continue to escalate, and rare earths remain a central pawn, despite an apparent agreement reached last month, in which China would address U.S. concerns over shortages of rare earths and other critical minerals. Earlier this week, China added 10 companies to its export control list, banning exports of dual-use rare earths to firms it says are tied to the U.S. military. The move was a response to Washington’s decision earlier this month to add new companies, including large Chinese firms such as Alibaba and Baidu, to a list of entities it says assist the Chinese military, a designation that restricts their access to U.S. technology and trade.

The easy takeaway is that this underscores the dangers of relying on China for key economic inputs like critical minerals. The more important one is that much of the risk is self-inflicted. Before reaching for new policies that will create further market distortions, the U.S. should remove the barriers of its own making that invite disruptions and impede diversification.

China’s new controls follow last week’s G7 summit in Évian, France, where critical minerals were a central agenda item. Leaders committed to reducing dependence on any single supplier outside the G7 and partner countries for rare earths and permanent magnets to under 60 percent by 2030, with an ambition to reach 50 percent as soon as possible. The declaration did not name China specifically, but with China the source of over 90 percent of the world’s light rare earths and the refiner of 98 percent of heavy rare earths, the target is clear.

These commitments fell well short of what the U.S. sought. Washington pushed for a minimum price mechanism to counter Chinese state support for its mining and refining industries, anchored to a U.S.-developed model that strips out alleged Chinese price manipulation. It drew opposition from other governments, downstream industries, and parts of the U.S. mining industry itself, and ultimately stalled over unresolved questions, including who would bear the cost, how far down the supply chain the supports should reach, and how the price floor would be governed.

Those questions reflect the underlying tension in the critical minerals debate. Access to cheap Chinese minerals is, first of all, a benefit. Over several decades China built a large mining and, more importantly, refining industry that can outcompete most rivals, through a mix of genuine comparative advantage, government subsidies, and economies of scale. So long as China exports its minerals and metals, downstream manufacturers and the consumers who buy the finished goods capture the benefit of those low prices. 

A price floor deliberately gives up that benefit, and an international agreement to give up cheap supply is hard to sustain. Each member has a strong incentive to defect and buy cheaper inputs, especially when its manufacturing sector is larger than its mining or refining.

>>>READ: Critical Minerals Policy Needs Clear Guardrails

Though Washington seems intent on such an agreement, or on imposing price supports unilaterally, price floors deserve serious scrutiny. These minerals are designated critical because disruptions to supply carry outsized economic effects, but the logic cuts both ways. A policy that artificially raises their cost carries outsized effects too. By converting an uncertain, possibly short-lived disruption into a guaranteed, ongoing cost, a price floor risks doing more harm than the disruption it guards against.

There may be narrow cases where some form of price stabilization is defensible, to help attract private capital to domestic projects or to sustain a limited stockpile against a sudden cutoff. But the argument is far from obvious and determining whether such policies are worthwhile requires a clear accounting of the costs against the benefits. 

Well before layering on price floors, guaranteed prices, or other subsidies, the U.S. should address the barriers that increase risks of supply disruptions and raise the cost of non-Chinese supply in the first place. Permitting is an obvious case, and it is not clear that without significant reform new domestic mining or refining could be built even with substantial government support. For example, Lynas, the largest rare earths producer outside China, made a deal with the Department of War in 2023 to build a heavy rare earths separation plant in Seadrift, Texas. The Pentagon agreed to up to roughly $258 million in support, but the project ran into problems over wastewater discharge permitting before being paused in 2025. This spring the two sides reached a new agreement, a four-year supply deal with a guaranteed floor price of $110 per kilogram for neodymium-praseodymium oxide, but no longer tied to a domestic facility.

That retreat exposes a deeper contradiction in U.S. critical minerals policy, between the desire to build a domestic minerals industry and the need for inexpensive minerals from outside China. If the goal is diversification and limiting China’s geopolitical leverage, what matters is securing alternatives at the lowest cost, wherever they come from, not favoring domestic supply for its own sake. Yet the U.S. has applied tariffs to friendly nations whose mines and processing facilities are some of the most immediate and realistic near-term alternatives to China. Those tariffs increase the difficulty of standing up alternative sources and, in a disruption, compound the damage by making the cheapest substitutes more expensive.

The more uncomfortable truth is that our own trade policy is driving much of the disruption risk we now worry about. China’s export controls have been reciprocal, a response to U.S. restrictions on Chinese firms, so the quickest route back to cheap minerals may be to rethink our own controls rather than create new supports for alternative supply. If these minerals really are critical, the costs of the trade dispute deserve their own honest accounting.

China’s leverage only works because the market can’t adapt quickly when supply is cut off. Price floors and subsidies try to force that adaptation by overriding price signals, but they lock in a permanent cost with no guarantee they pay off.  The better, more direct, and more durable move is to find the policy constraints we already impose and remove them. Whether additional support is then warranted is a question that is worth debating. What is clear upfront is that leaving the barriers in place will only raise the overall cost.

The views and opinions expressed are those of the author’s and do not necessarily reflect the official policy or position of C3.