​​China has a devastating tool in its escalating trade war with the US: rare earth metals (REMs). Last week, Beijing announced new restrictive export controls on the export of anything with even a smidgen of Chinese-produced REMs that could strangle the American tech sector. It was not in a position to do this until recently as it was 95% dependent on the import of US-made helium, an essential input into its own tech sector. However, after a few years of heavy investment it has broken that dependency and now only imports 5% of its helium from the US.

The clash over exotic materials trade is escalating into a serious trade war. When China’s exports of rare earths dropped sharply in the months after export controls were first introduced this April, manufacturers across the globe, especially in the auto sector, warned of imminent disruptions to production. Those disruptions were largely avoided after the Trump administration threatened to call off the Geneva trade truce if China didn’t quickly approve more export licences. For now, exports have largely returned to normal, though they are still down year-to-date.

Anticipating more trouble, the Pentagon announced last week it would procure up to $1bn worth of critical minerals, as part of a global stockpiling spree to counter Chinese dominance of the metals that are key for the manufacture of things like magnets needed in everything from mobile phones to wind turbines and weapons.

China’s aggressive move follows the White House announcement of new duties on Chinese imports. US President Donald Trump said on October 10 that he may introduce new 100% tariffs on Chinese goods in retaliation for restrictions on REMs, although he set the deadline for these tariffs as November 1, just after he is due to meet face-to-face with Chinese President Xi Jinping on the sidelines of the APEC summit. Trump said: “There is no way that China should be allowed to hold the world ‘captive’ but that seems to have been their plan.”

China’s exports of rare earth elements and magnets are relatively small in value terms, less than $4bn last year (~0.1% of China total exports), but they are of outsized importance to global supply chains.

The new export restrictions mark a significant escalation in the trade war that was not possible until recently, according to China-watcher and bne IntelliNews columnist, Arnaud Bertrand. The key reason for Beijing’s restraint until now lies in its unexpected vulnerability: helium.

“Helium isn’t just a party balloon's gas,” Bertrand said in a recent comment. “It has plenty of industrial applications for things such as quantum computing, rocket technology, MRI machines, as a coolant for chip lithography equipment, etc.”

Until 2022, China imported 95% of its helium, with the US controlling most of that supply. Four of the world’s ten largest helium producers were American firms, while the remaining six relied on US-made technology. The imbalance created a strategic pressure point that prevented Beijing from escalating export restrictions on critical materials such as rare earth elements. If Beijing cut the US off from REMs, the US could retaliate with an equally painful ban on helium exports to China.

“This raised huge alarm bells inside China,” Bertrand said, citing a 2022 paper in Frontiers in Environmental Science, authored by researchers from PetroChina’s Research Institute of Petroleum Exploration and Development. The study warned that China would be “greatly affected” by a US-led blockade on helium exports.

In response, China launched a multi-year drive to sever its dependence on American helium. China's domestic helium production has grown at a compound annual growth rate (CAGR) of approximately 65% over the last three years from an almost standing start in 2020. By 2023, it had exceeded 750,000 cubic metres of production a year. The country had built seven helium extraction facilities and reoriented imports toward suppliers in Russia and other “friendly” nations by the end of 2024.

A project to develop domestic extraction technology was awarded the 2024 “Outstanding Science and Technology Achievement Prize” by the Chinese Academy of Sciences, which said the effort had “broken the long-standing monopoly of the US and ensured the security of China’s helium resources.”

Several state-backed initiatives have aimed to develop helium extraction and purification facilities, often tied to natural gas projects in provinces such as Xinjiang, Inner Mongolia, and Sichuan. The most notable project is the Yurungkash helium extraction plant in Xinjiang, operated by Sinopec, which began operations in 2022. The plant is estimated to produce around 200,000 cubic metres of helium per year. Additional production units have come online in Shaanxi and Sichuan, including a facility operated by PetroChina.

By the end of 2023, China’s total annual helium production capacity had reached an estimated 700,000–800,000 cubic metres, according to industry estimates cited by the Asia Industrial Gases Association (AIGA). That figure was less than 5% of global production but marked a significant rise from near-zero levels just a few years prior.

China continues to import significant amounts of helium. As of 2023, domestic production accounted for only around 12–13% of total consumption. But it has diversified supplies and is no longer dependent on the US. In 2022, China imported around 1.2mn cubic metres of helium from the United States, down from more than 2.5mn cubic metres in 2019, according to trade data from Chinese customs and the US Geological Survey (USGS), but at the same time increased imports from Qatar, Algeria, and Russia, which have all ramped up supplies and production. New units are scheduled to come online by 2026, as China aims to double domestic helium production to over 1.5mn cubic metres annually.

“The ‘helium shackles’ were broken,” Bertrand said. “By the end of 2024 China had cut its helium dependence on the US to less than 5%," reported the South China Morning Post.

With this key vulnerability addressed, Beijing lifted the last leverage the US had over China, freeing it to use its REMs as a political weapon in the growing trade war that was already on the cards during Trump’s first term in office.

“Power isn’t about intentions or rhetoric – it’s about what you can actually do,” Bertrand said. “Many wonder why countries almost never retaliate when the US imposes sanctions. The answer is simple: they can’t. They lack the alternatives, the technology, the supply chains.”

Beijing has solved that problem. China remains heavily dependent on the US as an export market, which still accounts for just under 15% of all Chinese exports, or around half a billion dollars a year, down from a peak of 19% in 2018. But the goods it sells to the US can now be redirected to new customers in the Global South and that process has already started.

According to China's Ministry of Commerce, "export growth is shifting from traditional developed markets to emerging economies," a trend that accelerated following US tariffs imposed during the trade war and further deepened by disruptions during the COVID-19 pandemic.

China has been pursuing a systematic campaign to remove all possible US pressure points across strategic sectors, including semiconductors, energy, telecommunications and pharmaceuticals. That effort, Bertrand said, is what has enabled the country to respond more assertively in the ongoing economic standoff with Washington.

“It’s depressing because it highlights the immense magnitude of the task at hand to become genuinely sovereign,” Bertrand said. “Inspiring because China demonstrated that it can actually be done, and relatively fast if we execute competently.”