America’s tariff gamble was built on its market power—Did China’s near-monopoly on critical minerals trump it?

Evoking comparison with a long and stable marriage, Chinese President Xi Jinping said, “frictions now and then are normal…China’s development and rejuvenation are not incompatible with President Trump’s goal of Making America Great Again.”

All this happy talk is the usual doublespeak and hypocrisy of politics, of course, except in this case the stakes are large. What we have witnessed for the last nine months is a test of wills between two fundamentally different views of market power.

One giant, the US, believes—rather optimistically—that it is a monopsony. It (we can think of it as King Kong) initiated a tariff war because it may have convinced itself that as the largest economy and biggest importer with the greatest purchasing power in global trade, it had the ability to demand concessions from countries that were selling to it.

King Kong’s primary target was the other giant, China, which believes—correctly—that it holds a monopoly over several goods and inputs that are essential for high tech manufacturing. The target (we can call it Godzilla) refused to yield and initiated countermeasures to restrict access to some of these essential inputs.

Let us consider the facts underlying the US presumption of having monopsonistic power in global trade. At about $4.1 trillion in 2024, the US is, no doubt, the largest importing economy in the world.

But it is not a dominant player. Germany, France and the UK taken together are equally large. If we add Spain, Italy, Scandinavia and the rest of the European Union, the imports total over $10 trillion, which is more than two times as large as the US. China, in second place in the global rankings with $3.2 trillion of imports, is not far behind the US either.

It should also be noted that the US is a large country with a diverse domestic economy, which makes it one of the least import-dependent countries. At about $30 trillion, the US economy is about 26% of the global economy in nominal terms, but its imports are far less, comprising only 13% of global imports. As a share of its gross domestic product, imports in the US comprise only about 15%, which is the fifth lowest in the world (only Sudan, Turkmenistan, Ethiopia and Argentina import less).

One could argue that this is a major reason why the US gambled with raising tariffs. Thought leaders in the Trump administration may have felt that because of the relatively low import exposure of the US, the inevitable price increases would be limited and politically manageable (as they appear to have been so far).

China, on the other hand, does have close to a monopoly in some key areas. It dominates the refining of several crucial minerals and metals. Here is a short list showing how much of the global share is refined/controlled by China: manganese 98%, graphite 95%, polysilicon 93%, rare earths 92%, cobalt 73%, lithium 72%, aluminium 57%, steel 53%, nickel 50%, copper 44%.

Note that China does not necessarily possess or mine all these materials. For example, the Democratic Republic of Congo mines 80% of the world’s cobalt, Indonesia mines 47% of the nickel, and Australia mines 38% of the iron ore. But China processes and thereby controls the flow of these materials.

For certain materials, China dominates both their mining and refining. It mines 79% of the world’s silicon, used to make semiconductors and solar panels, among other things. It also mines 69% of the world’s rare earths (chemically similar elements like neodymium, praseodymium, dysprosium and terbium, which pose significant challenges in mining).

Rare earths are crucial for manufacturing many high tech products, including permanent magnets for electric vehicle motors and wind turbines, lasers and hard drives. These materials, along with lithium, graphite and nickel are vital inputs to clean energy and defence technologies (such as drones).

China has not been shy about deploying its dominance over rare earth minerals by using export restrictions to get its way. It used restrictions in 2010 against Japan over a fishing dispute and now against the US as a retaliation against tariffs.

China’s dominance in these materials is not accidental but strategic. There is abundant published research on how Chinese companies built critical mineral supply chains with the help of government policies and funding.

China’s significant and growing presence in Africa (a region ignored, if not derided by the US) is meant more to shore up mineral supply chains (with exclusive access to mines and ports) than it is to sell cellphones and sneakers.

This is a well-known colonial model of extraction and China remembers and understands it well. A long-term industrial policy and vision has guided China’s ascent to a monopolistic position in some key areas of global technology.

The US, on the other hand, has always disdained industrial planning or strategy in the belief that markets alone would make the correct allocations and decisions. In initiating the ongoing tariff war, it may also have overestimated its own market power and underestimated China’s real dominance in the materials that are crucial inputs for high tech. Some analysts have called the US approach “tactics without a strategy.”

In Busan, the US had to walk away with the consolation prize of a restored status quo in soybean exports by US farmers. Nothing gained after months of threats. China walked away with the confidence that it had the leverage to resist US unilateralism on tariffs. No prizes for guessing who won this wrestling match.

The author is a professor of geography, environment and urban studies and director of global studies at Temple University.