With the U.S.-China trade war deepening, Ottawa must turn mineral abundance into geopolitical influence.
Amid escalating trade tensions with the United States, China has suspended the export of critical rare earth minerals and magnets essential to the production of semiconductors, vehicles, and aircraft, pending the approval of a new regulatory system.
As noted in the New York Times, “the new system could permanently prevent supplies from reaching certain companies, including American military contractors.”
Newsweek points out that the F-47 Next Generation Air Dominance (NGAD) aircraft depends upon “seven categories of medium and heavy rare earths, including samarium, gadolinium, terbium, dysprosium, lutetium, scandium and yttrium.”
China’s Leverage in Rare Earths
As with most confrontations, tit-for-tat measures between major economies risk accelerating beyond their initiators’ control. The trade conflict launched by U.S. President Donald Trump is no exception. With businesses and investors in the United States and around the world unsure of what tomorrow will bring, and thus unable to effectively plan for the medium to long term, China is seizing the opportunity generated by U.S. instability.
As explained by Mining.com, China dominates the rare earth market. China accounts for 60% of mined rare earths production and 90% of global processing. The only operational U.S. rare earth mine, Mountain Pass, largely depends on China for separating and refining. Other producers, such as Myanmar and Laos, operate in China’s shadow and remain heavily dependent on Chinese processing capacity.
China’s dominant position in rare earths gives it leverage. And as Donald Trump climbs the escalatory ladder through the imposition of tariffs, China has become more willing to use that leverage.
By withholding resources needed by the United States, China has something to offer in negotiations for the lifting of tariffs.
China could also make a move that would put the U.S. and its increasingly wary allies in a bind: Resume rare earth exports to all countries aside from the U.S.
Such a manoeuvre would likely provoke diplomatic retaliation from Washington, but given the importance of rare earths to so many economies, few would be willing to resist such an offer. Further, the U.S. has little to counter such a move, other than threats.
This is further evidence of a lack of foresight shown by the Trump Administration regarding their tariff war. The Administration appears to have assumed that the imposition of tariffs and a coercive trade posture would lead to a rapid acceptance of U.S. demands. That has not occurred.
Canada’s Strategic Opportunity
While Canada’s economy would take a hit were we to lose access to rare earths, and while U.S. pressure in the event China offers everyone except our southern neighbours a deal would be immense, Canada has an opportunity to position itself to benefit from this instability in the long term.
The rules-based international order is fraying. The global standing of the United States is diminished. China is already viewed warily by much of the world, as the CCP’s centralized nature means the full power of the Chinese State can be turned against any company or nation on a whim.
Thus, there is a dearth of reliable economic partners rich in critical minerals, creating room for an alternative supplier.
Canada is uniquely positioned to fill this role. According to Natural Resources Canada, our country possesses over 15.2 million tonnes of rare earth oxide, among the largest known reserves in the world.
There have been some positive steps in this direction.
Bipartisan progress
Both the Conservatives and Liberals appear willing to encourage critical mineral development.
Conservative Leader Pierre Poilievre has promised to invest $1 billion in transportation infrastructure to “unlock the Ring of Fire” and directly referenced rare earth metals:
“Located 500 kilometres north of Thunder Bay, the Ring of Fire is one of the largest untapped areas for rare earth metals in the world, hosting tens of billions of dollars of resource wealth.”
Poilievre also noted that the development of Canada’s rare earth metals would help our allies escape reliance on China.
Meanwhile, Liberal Leader Mark Carney has promised to include defence, energy, semiconductors, and clean technologies in a critical minerals exploration tax credit, while expanding coverage for technical studies of exploratory sites and brownfield site development. Pierre Gratton, CEO of the Mining Association of Canada, praised the proposal as something that could “really help.”
Next Moves for Ottawa
This emerging bipartisan consensus is encouraging. In contrast to our ‘late to the game’ approach to LNG exports, Canada should act swiftly to attract investment in rare earth exploration and mining.
We should immediately begin trade talks with Europe, India, Japan, and South Korea, and include a defence-cooperation agreement as part of those talks.
Given the deep importance of critical minerals to the defence industry, it would be wise to connect the two. As a reliable nation with significant critical mineral reserves, Canada has a strategic advantage, and we must use it. We can trade preferential exploration rights and ownership opportunities in exchange for long-term commitments from our allies to co-develop advanced weaponry. Canada could use this as part of our pitch to join the Global Combat Air Programme, for example. We could offer South Korean and German companies preferential arrangements in exchange for those countries building military production facilities in Canada.
We can also continue to welcome U.S. investment—Canada & the U.S. already have joint investments in critical mineral projects and supply chains. However, future investment should be contingent upon the U.S. adhering to its trade agreements with our country, publicly reaffirming our sovereignty, and lifting unjustified tariffs. We have a strong negotiating position, and we would be wise to employ it.
Canada has the opportunity to benefit from U.S.-China clashes and instability. A focused effort based upon deepening ties with our allies and building on our reputation as a reliable nation can ensure Canada emerges as a winner in this fractious era.
Spencer Fernando
Image – YouTube
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