U.S.-China Trade: Mineral Export Controls Threaten to Hamstring U.S. Energy Innovation

Wide-ranging U.S. tariffs have escalated the U.S.-China trade dispute, with both nations levying general import taxes exceeding 100%. Although it is uncertain how severely direct trade in energy technologies will be affected—solar panels were entirely excluded from U.S. lists in early April, but high levies have since been announced for Southeast Asian Photovoltaic (PV) products, including surcharges exceeding 3000% on Cambodian exports—China has already retaliated by restricting key critical mineral exports.

Restrictions are not necessarily U.S.-specific; the controls will, in theory, apply universally. Going forward, exports of seven Rare Earth Elements (REEs)—samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium—will be subject to approval by Chinese authorities. However, the primary targets—U.S. heavy industries—are expected to bear the brunt of tightening supplies.

The energy transition is dependent on REEs. Samarium and gadolinium are used in control rods and shielding materials for nuclear reactors, while dysprosium and yttrium magnets are crucial for wind turbines and Electric Vehicles (EVs). Scandium is increasingly important for Solid Oxide Fuel Cells (SOFCs), which can burn alternative fuels like e-methanol and hydrogen. REEs also support petrochemical production: lutetium is commonly used for cracking hydrocarbons.

China holds a near-absolute monopoly on REE production. Critically, it also monopolizes the processing of REEs. International concern over supply overdependence emerged after 2010, when Chinese mineral exports were tightened in response to a Sino-Japanese territorial dispute—the first of several restrictions implemented throughout the decade. Despite global efforts to diversify supply, little has changed since; as of 2025, China continues to export over 95% of the world’s REEs.

For now, China’s new licensing system appears more targeted than previous restrictions, which often limited the total quantity of minerals permitted for export. If the goal is to inflict economic damage, those most affected are likely to be U.S. “strategic” industries. U.S. renewable, nuclear power, battery, and hydrogen technology producers are liable to be impacted, driving costs significantly higher—or preventing production of some technologies altogether, if supplies are entirely choked off.

Access to domestic minerals is not at issue. The United States boasts extensive REE deposits, many of which were mined before supplies were offshored. If operations restart, as planned, in 2027, and processing industries are created to support production—a technically difficult, environmentally hazardous, and extremely expensive task—sufficient onshore supply may be reestablished. However, the costs will be exorbitant. Kickstarting domestic REE production will require heavy capital investment, a newly trained workforce, and extensive efforts to prevent operations from damaging nearby ecosystems, water sources, and arable land. The resultant cost burden will likely sit with end users—U.S. energy technology innovators.

While long-term cost increases threaten the price-competitiveness of U.S. energy technologies, supply shortages will endanger their overall quality. Even if REE production and processing does begin in 2027, industries will suffer bottlenecks—and potentially lack sufficient materials altogether—in the meantime. Whatever minerals can be purchased will be in high demand. The likely result will be fewer cutting-edge energy innovations produced by the domestic U.S. market, as manufacturers scramble to secure alternative, inferior materials, or cease production entirely.

These encroachments on cost and quality come at a critical juncture for U.S. energy technology firms, which already faced an uphill battle in competing with low-cost Chinese alternatives. Having dominated the solar PV market from the mid-2010s, China is rapidly establishing a similar leadership position in wind energy. Meanwhile, American producers struggle to compete with Chinese-made batteries and EVs—a situation that will worsen as tariffs take effect. Likewise, as U.S. green Hydrogen (H2) production stumbles, Chinese H2 capacity is accelerating to fill the gap. At this crucial inflection point, the stifling of high-quality mineral supplies may not simply be an inconvenience; it may prevent U.S. innovators from establishing themselves as market participants altogether.

Supply shortages are liable to destabilize any fledgling industry. However, in today’s hyper-competitive rush to establish strong domestic energy industries, instability and consequent inaction could amount to a “lost moment” for U.S. innovators. If mineral restrictions cannot be avoided, or an accommodation made, shortages will soon be felt. In this worst-case scenario, the best U.S. energy innovators can do is to be ready to weather the storm.