Economist Steve Hanke believes China's dominance of rare-earth processing and permanent magnets will deter President Donald Trump from escalating tariffs before Chinese President Xi Jinping's visit to the United States in September.

Hanke Says China Holds Tariff Leverage

"China knows its chokehold on permanent magnets and rare earths will prevent Trump from imposing higher tariffs on China before Xi Jinping visits the US in September," Hanke, a professor of applied economics at Johns Hopkins University, wrote on X. "CHINA = HOLDS ALL THE CARDS."

Trump announced Xi's visit last week. The meeting follows their May summit in Beijing, where Washington said China agreed to address U.S. concerns about shortages involving neodymium, yttrium and other critical minerals.

Rare Earth Dominance Threatens Global Supply Chains

Hanke's warning reflects a highly concentrated supply chain. The International Energy Agency estimates China accounted for 60% of mined magnet rare earths, 91% of refined production and 94% of sintered permanent magnets in 2024. Manufacturers use those magnets in electric vehicles, electronics and advanced weapons.

The IEA recently warned that Chinese export disruptions could expose $6.5 trillion in annual manufacturing outside China to supply shocks. Small volumes of specialized materials can threaten entire automotive, energy and defense production lines, the IEA notes.

Beijing imposed licensing requirements on several rare earths and magnets after Trump's 2025 tariff increases. Although the White House described the May talks as progress, Reuters reported that China did not agree to dismantle its export-control system and continued restricting shipments of dysprosium and terbium.

Washington Struggles To Build Domestic Alternatives

That leverage is testing Washington's diversification plans. U.S. demand for the most common rare-earth magnet reached roughly 48,000 metric tons in 2025, while domestic sources supplied about 300 tons, according to Reuters. Analyst Chris Berry said eliminating Chinese supply by the Pentagon's 2027 deadline was not feasible without much more processing capacity.

Defense suppliers have pressed for more time, while the Trump administration has backed domestic miners, magnet plants and a $12 billion strategic stockpile. Washington also proposed a critical-minerals trade bloc with allies.