China's Rare Earth Export Squeeze: Potential Catalyst for India-US Trade Deal Amid Timing Challenges

Why in News

China has expanded its export controls on rare earth elements and technologies, adding five more elements to its restricted list effective October 9, 2025, amid escalating US-China trade tensions. This move has prompted US Treasury Secretary Scott Bessent to call for support from allies like India against China's actions, potentially accelerating stalled India-US trade negotiations as Indian officials visit Washington this week to address the 50% tariffs imposed on Indian exports due to Russian oil imports, highlighting shared concerns over critical minerals supply chains.

Key Points

1. China tightened export controls on rare earths, adding holmium, erbium, thulium, europium, and ytterbium to its list, now totaling 12 elements, along with magnets and refining technologies, requiring licenses and end-user declarations.
2. US Treasury Secretary Scott Bessent framed the curbs as "China versus the rest of the world," expecting support from India, Europe, and Asian democracies to counter China's dominance in rare earths, which account for 90% of global processing.
3. India's Commerce Secretary Rajesh Agrawal is leading negotiations in Washington this week, joined by other officials, aiming to resolve 50% tariffs imposed by the US on August 27, 2025, due to India's Russian oil imports.
4. The tariffs affect 55% of India's $87 billion annual exports to the US, particularly textiles (28% of global T&A exports), leading to order cancellations, inventory build-up, and discounts in MSME sectors.
5. India and the US share an 80% overlap in critical minerals lists (40 out of 50 US-identified minerals), offering potential for cooperation in extraction, processing, and third-country partnerships like in Africa.
6. India has deposits of rare earth elements like thorium, neodymium, praseodymium, dysprosium, and terbium, with collaborations such as IREL and Toyotsu Rare Earth India enhancing capabilities.
7. The US is pushing for a trade deal granting India 16-18% tariff access, higher than for EU and Japan, to build alternative supply chains, but India must safeguard red lines in agriculture, digital trade, and IP.
8. China's controls may be a negotiating tactic amid US-China tensions, including port fees and sanctions, ahead of a potential Trump-Xi meeting at the APEC summit.
9. India's exporters could gain from US-China trade escalation, with tariffs on Chinese goods rising to 130% from November 1, 2025, making Indian products more competitive.
10. Risks include environmental regulations slowing projects and China coercing India over US ties, while a US-China grand bargain could undermine India's position.

Explained

What are rare earth elements and why is China dominant in their supply?

Definition and Importance: Rare earth elements (REEs) are 17 metals crucial for high-tech products like EVs, wind turbines, smartphones, and defense systems due to their magnetic and conductive properties; they are not rare but hard to extract economically.

China's Control: China mines 60% of global REEs and processes 90%, achieved through decades of investment since the 1980s, low costs, and lax environmental rules, giving it leverage in trade disputes as seen in 2010 curbs on Japan.

Global Dependence: The US and India rely heavily on Chinese REEs; India's imports rose 23% to 2,270 tonnes in 2023-24, with 65% from China, affecting clean energy goals like 500 GW renewables by 2030.

Recent Curbs: Effective October 9, 2025, China added five heavy REEs to controls, requiring licenses and end-user info, potentially disrupting supply chains amid US tariffs.

How do China's rare earth controls impact global trade and India specifically?

Supply Chain Disruptions: Controls could raise prices and cause shortages for industries reliant on REEs, pushing countries to seek alternatives and accelerating decoupling from China.

India's Vulnerability: India imports 90% of REE needs, facing risks to EV and electronics sectors; however, it holds 7.23 million tonnes of REE reserves but lacks processing tech.

US-India Alignment: Shared concerns could fast-track a trade deal, with US offering tariff relief in exchange for cooperation on critical minerals, including joint ventures in Africa.

Broader Effects: Escalates US-China trade war, with US imposing vessel fees and China retaliating, affecting global growth projected at 3.2% by IMF, while India maintains 6.6%.

What is the status of India-US trade negotiations and the role of tariffs?

Tariff Background: US imposed 50% tariffs on Indian exports from August 27, 2025, under IEEPA, citing Russian oil imports; affects $48 billion of India's $87 billion US exports.

Negotiation Dynamics: Indian team in Washington seeks resolution; India offers to boost US energy imports ($12-15 billion scope) to offset Russian oil and reduce tariffs.

Deal Prospects: US may grant 16-18% tariff access; Bessent's call for India support signals strategic partnership despite tensions, but timing critical before potential US-China bargain.

Challenges: India must avoid anti-China clauses to preserve autonomy; differing focuses—US on mining, India on recycling—need coordination.

Why could China's actions accelerate an India-US deal, and what are the risks?

Catalyst Effect: Curbs highlight China's monopoly, pushing US to ally with India for alternative chains, as Bessent seeks "India and other Asian democracies" support.

Timing Key: Negotiations gain momentum post-Modi-Trump call and Gor's visit; deal could relieve MSME pain from tariffs, where 33% textile firms saw 50% turnover drop.

Risks Involved: A US-China accord at APEC could sideline India; environmental laws and IP differences may hinder cooperation; China may coerce India over US ties.

Opportunities: Overlap in critical minerals lists enables joint R&D and African investments; India's REE deposits and Japan tie-ups position it well.

What are the implications for India's economy and strategic autonomy?

Economic Impact: Tariffs hurt exports, but diversification to China/UAE cushions; rising trade deficit from gold/fertilizer imports pressures forex reserves.

Strategic Autonomy: Deal must safeguard agriculture/digital trade; avoiding anti-China commitments preserves flexibility amid US-China maneuvers.

Long-Term Benefits: Boosts domestic REE processing via National Critical Mineral Mission; enhances global standing in clean energy supply chains.

Global Context: Aligns with 'China Plus One' strategy; India's 6.6% growth resilient, but MSMEs need support amid trade wars.

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