Trump threatened 100% tariffs on all Chinese goods after Beijing tightened rare earth export controls. Strong words. Empty threat.

Why? Because following through would cripple the U.S. defense industry, halt F-35 production, and leave America's military scrambling for components it literally cannot source elsewhere. This isn't a trade war. It's economic mutually assured destruction—and China's holding all the launch codes.

The Numbers Don't Lie

China doesn't just dominate rare earths. It owns them:

Production & Processing:

• 60-70% of global rare earth mining

• 90% of global processing capacity

• 92% of refined rare earth output (International Energy Agency)

• Near-monopoly on heavy rare earths like dysprosium and terbium

U.S. Dependence:

• 70% of U.S. rare earth imports come from China

• Pentagon stockpiles measured in months, not years

• 100% import dependent for military-grade rare earth magnets

The Magnet Monopoly:

• China produces ~300,000 tonnes of NdFeB magnets annually

• U.S. target: 1,000 tonnes by 2025

• That's 0.3% of China's output

Compare that to JPMorgan having 4.4x less CRE exposure than regional banks? This is worse. Way worse.

What October's Export Controls Actually Mean

On October 9, China expanded rare earth export restrictions to cover 12 of 17 rare earth elements, plus the technology to process them. The new rules target:

Restricted Elements:

• Samarium, gadolinium, terbium, dysprosium (April 2025)

• Holmium, erbium, thulium, europium, ytterbium (October 2025)

• Lutetium, scandium, yttrium

But Here's the Kicker:
Beijing won't just license rare earth exports. It now requires licenses for products made outside China using Chinese rare earth technologies—even if the rare earths themselves came from elsewhere.

Translation: China's claiming extraterritorial control over global rare earth supply chains. It's the reverse of America's Foreign Direct Product Rule, except China actually has the market power to enforce it.

The immediate impact? China's rare earth magnet exports fell 74% year-over-year in May 2025. Shipments to the U.S. plummeted 93.3%. By June, European automakers reported production halts after exhausting supplies. Japan's Suzuki suspended production of its flagship Swift.

Your F-35 Runs on Chinese Magnets

Let's talk about what rare earths actually power in U.S. defense systems:

Each F-35 Lightning II contains:

• 920 pounds of rare earth elements

• Or ~418 kg per Congressional Research Service data

• Neodymium, terbium, dysprosium, yttrium, samarium

What they do:

• Targeting systems

• Missile guidance

• Radar systems

• Stealth coatings

• Flight control actuators

Other critical systems:

• Tomahawk missiles: rare earth magnets

• Predator drones: rare earth components

• Virginia-class submarines: 4,600 kg of rare earths per unit

• Arleigh Burke destroyers: 2,600 kg per ship

• JDAM smart bombs: rare earth guidance systems

In 2022, F-35 production was actually halted after discovering Chinese-sourced rare earth magnets in the engine. The Pentagon had to grant a waiver just to resume production.

So when Trump threatens tariffs, China threatens to cut off components for America's most advanced weapons systems. That's not negotiating leverage. That's checkmate.

The Bluff Economics

Trump's 100% tariff would come on top of the existing 44% tariff rate already in place on China. Combined, that's essentially an embargo—cutting off trade between the world's two largest economies.

What happens if Trump follows through:

1. Defense production stops — No rare earths = no F-35s, submarines, missiles, or guidance systems

2. Tech supply chains collapse — Rare earths power semiconductors, EVs, wind turbines, smartphones

3. Prices explode — Limited alternative sources can't scale fast enough

4. Allies suffer — Europe, Japan, South Korea equally dependent on Chinese rare earths

5. China finds other buyers — Demand from rest of world keeps Chinese processors profitable

What happens if China actually restricts U.S. defense applications:

Well, that's already happening. Beijing announced it won't allow rare earth exports for foreign military use. First restrictions specifically targeting defense sectors.

"It will deny licenses to foreign militaries and companies producing military-use end goods," explains Gracelin Baskaran from the Center for Strategic and International Studies. "It undermines the defense industrial base at a time of rising global tension."

The U.S. can't retaliate effectively. What's America going to restrict? Soybeans? China's already snubbing U.S. agricultural exports. Advanced semiconductors? That ship sailed—China's building domestic alternatives.

The Domestic Supply Chain Fantasy

The Trump administration keeps touting efforts to build domestic rare earth capacity. Let's examine reality:

Mountain Pass Mine (California):

• Only U.S. rare earth mine

• MP Materials produces 43,000 metric tons of concentrate in 2024

• Target: 48,000 tonnes by 2026

• The problem: Almost all concentrate still gets shipped to China for processing

The Magnet Gap:

• MP Materials opened a Texas facility targeting 1,000 tonnes of NdFeB magnets by 2025

• That's 0.3% of China's 300,000 tonnes annual output

• And it contains primarily light rare earths, not the heavy rare earths critical for defense

Department of Defense Spending:

• $439 million awarded since 2020 to companies like MP Materials, Lynas USA, Noveon Magnetics

• Another $400 million equity stake in MP Materials announced recently

• July 2025 deal: Pentagon-MP Materials partnership for vertical integration

Timeline to Independence:
Processing facilities take years to build, not months. Lynas is constructing facilities in Texas. Energy Fuels opened processing in Utah with 840 metric tons annual capacity. These are drops in the ocean.

Best case scenario? China's market share drops from 90% to 75% by 2028. And that assumes everything goes perfectly—no delays, no technical issues, no Chinese countermeasures.

Meanwhile, China's acquiring more rare earth assets globally, including paying a 200% premium for Peak Rare Earths' Tanzania project in May 2025.

Why China Won't Actually Embargo

Here's the twist: China doesn't want a full embargo either.

Game theory tells us why. If China permanently cuts off rare earth exports, it would:

Damage China's interests:

• Force accelerated Western development of alternatives

• Sacrifice billions in processing infrastructure investments

• Lose long-term market dominance

• Unite Western allies against Beijing

Research analyzing China's rare earth strategy concludes Beijing prefers temporary, targeted restrictions. Use the threat, extract concessions, resume supply. Rinse and repeat.

That's exactly what happened in June 2025. After April's export restrictions and Trump's tariff threats, the two sides negotiated. China created a "green channel" for expediting licenses from trusted U.S. companies. Exports surged.

But—and this is critical—the licensing system remains. China still controls the spigot. Approvals for Western companies are taking longer. There's increased scrutiny. And restrictions on military applications continue.

The Real Leverage

Trump's tariff threat isn't completely toothless. The U.S. still has cards to play:

American advantages:

• Control of commercial aviation supply chain (Boeing, components)

• Software dominance (Windows runs 90% of Chinese PCs)

• Advanced semiconductor equipment

• Financial system access

But here's the rub: many of these tools are already deployed. The U.S. has restricted semiconductor exports. It's tightened tech transfer rules. China's been building workarounds for years.

Meanwhile, rare earth restrictions hit immediately. No substitutes. No alternatives. No workarounds.

Treasury Secretary Scott Bessent accused China of using rare earth dominance to slash prices and push foreign competitors out of the market. His solution? Price floors across industries to combat Chinese "market manipulation."

Translation: We can't compete on cost, so we'll subsidize domestic production. That works if you have domestic production to subsidize. Right now, America mostly doesn't.

The Bottom Line

Trump's 100% tariff threat is a bluff because executing it would hurt America more than China—at least in the near term.

What Trump actually wants:

• China to ease licensing requirements

• Guaranteed rare earth access for U.S. defense contractors

• Time for domestic capacity to scale up

• Face-saving win before meeting Xi in South Korea

What China wants:

• U.S. to roll back semiconductor restrictions

• Recognition of Chinese "technology transfer" rules

• Continued access to U.S. markets for other exports

• Acknowledgment of rare earth leverage

The scheduled Trump-Xi meeting is still happening later this month, despite Trump's threats to cancel. Because both sides know actual decoupling would be catastrophic.

China mines 60% of rare earths and processes 90%. The U.S. is 100% import dependent for military-grade magnets and 70% dependent on China for rare earth imports overall.

In poker, you don't go all-in when your opponent can see your cards. Trump's cards are face-up on the table. Each F-35 requires 920 pounds of rare earths. Virginia-class submarines need 4,600 kg. Tomahawk missiles need rare earth magnets. And China controls 90% of processing.

That's not a negotiating position. That's economic MAD, except one side has way more warheads.

The tariff threat will remain a threat. The export controls will ease slightly after negotiations. Both sides will claim victory. And America will keep buying Chinese rare earths while frantically trying to build domestic capacity that won't be meaningful for another 3-5 years.

Because the alternative—actually following through—would ground F-35s, idle defense contractors, and leave the Pentagon scrambling to explain why it can't build the weapons systems it just ordered.

China knows it. Trump knows it. And now you know it too.