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Global supply chains for rare earths have become a major political battleground. As China tightens its grip with export controls, the United States and its allies are scrambling to build alternative sources and reduce their dependency. But while the world focuses on restrictions, a far more complex strategy is unfolding inside China.

Beijing’s game plan is not just about cutting off supply. It’s a sophisticated, multi-layered approach combining a powerful domestic industrial policy, strategic international cooperation, and a carefully calibrated use of export controls. Focusing only on the threat of a supply cutoff misses the bigger picture of how China is adapting to reinforce its dominance in the face of U.S. pressure.

Beyond Mining: Upgrading the Industrial Engine at Home

China's advantage in rare earths was never just about its mineral reserves. Its real power comes from an unmatched ability to integrate extraction, processing, and downstream manufacturing at an enormous scale. This dominance is the direct result of state-level strategic planning that has funneled capital, technology, and regulatory support across the entire value chain.

For years, Beijing has prioritized moving up from a simple raw material extractor to a high-value industrial powerhouse. This technological upgrade has been fueled by a state-led capital allocation model that directs massive credit into the sector. While this sometimes led to oversupply and low prices, it also created steep barriers to entry for foreign competitors. Early environmental regulations also allowed China to scale up its processing capacity rapidly, achieving economies of scale that others find nearly impossible to match.

More recently, China's policy has shifted from quantity to quality. The new focus is on cementing its advantage through:

• Increased government funding for research and development.

• Tighter regulatory and environmental standards.

• Consolidating key producers through state-guided mergers.

• Strengthening midstream and downstream manufacturing for electric vehicles, renewable energy, and other advanced sectors.

These moves aim to anchor China's power not in the volume of earth it digs up, but in its deep industrial capacity, technological superiority, and systemic control over the entire supply chain.

The Carrot: Cooperation as a Tool of Influence

While most policy debates center on the coercive threat of China's rare earth power, economic leverage can be used as both a carrot and a stick. Long before the current geopolitical tensions, China was embedding itself in overseas mineral projects through its "Going Out" strategy and the Belt and Road Initiative.

As U.S.-led decoupling efforts gain momentum, China is now using its rare earth expertise as an inducement for cooperation. Beijing is actively exploring ways to leverage its advanced processing capacity to build closer economic ties with other nations.

A prime example is the reported discussion between China and Malaysia in October 2025 about a potential partnership to build a new refinery. The project would likely involve Chinese technical assistance to process critical materials needed for EV motors, wind turbines, and advanced electronics.

Because outright technology transfer is restricted, Chinese state-owned firms are likely to engage through joint ventures, equipment sales, and engineer training programs. This allows China to support industrial development in partner countries and externalize some production stages while keeping a firm grip on core technologies and downstream markets. By offering targeted assistance, Beijing strengthens its position within global supply networks and counters the push for a broad realignment toward the United States.

The Scalpel: Why Export Controls Are Calibrated, Not Crude

While China's export controls can inflict real costs, they also have consequences. The United States and its allies are now actively restructuring their supply chains in direct response to the threat of future Chinese restrictions. In early 2026, a G-7 ministerial meeting in Washington focused squarely on building supply chain resilience, considering measures like price floors and international incentives to break away from Chinese supply.

This push is backed by several U.S.-led initiatives. Washington is increasing state funding and expanding cooperation with allies like Australia and Japan, as well as partners in Southeast Asia such as Malaysia and Thailand, to build alternative capacity. The goal is to institutionalize diversification, treating potential supply disruptions not as one-off shocks but as a permanent risk.

Beijing understands that using its rare earth leverage as a blunt weapon risks accelerating this decoupling. As a result, its export controls have been applied with cautious calibration. The slowdown in exports after the April 2025 curbs, followed by a rebound after talks in London later that year, shows this flexibility. Similarly, restrictions imposed in October 2025 were suspended after a meeting between U.S. President Donald Trump and Chinese President Xi Jinping.

This pattern reveals that China uses export controls as both a retaliatory tool and a powerful bargaining chip. The aim is to manage supply and preserve leverage without triggering a full-scale economic conflict.

China's Strategy Is More Than Just a Threat

To understand China's rare earth strategy, looking only at export controls is a mistake. While these restrictions grab headlines, they are just one tool in a much larger toolkit.

Instead of relying on outright bans, Beijing is executing a multifaceted strategy that combines strengthening its domestic industrial base, offering cooperation as an incentive, and applying restrictions with surgical precision. Together, these efforts allow China to solidify its industrial power, manage the pace of global diversification, and mitigate geopolitical risks in a world where critical minerals have become central to great power competition.

Canadian Prime Minister Mark Carney and Chinese President Xi Jinping have launched a "new strategic partnership," marking the first visit to Beijing by a Canadian leader in eight years and signaling a significant diplomatic reset. The move aims to reshape Canada's trade relationships amid ongoing economic pressure from the United States.

Canadian Prime Minister Mark Carney meets with Chinese President Xi Jinping in Beijing to establish a new strategic partnership.

"Together we can build on the best of what this relationship has been in the past to create a new one adapted to new global realities," Carney told Xi during their meeting in the Great Hall of the People.

Why Canada is Pivoting to China

The state visit highlights Canada's urgent need to diversify its export markets and reduce its economic dependence on the United States. The strategic shift follows President Donald Trump's decision to impose sharp tariffs on key Canadian goods, including steel, aluminum, vehicles, and lumber.

In response, Carney has set a goal to double Canada's non-US exports by 2035. While the U.S. remains its primary economic partner, accounting for about 75% of Canadian goods exports in 2024, the trade friction has forced Ottawa to seek new opportunities. China, currently Canada's second-largest market, received less than 4% of its exports in the same year.

Breaking Down the New Agreements

The talks in Beijing produced several preliminary agreements aimed at strengthening economic ties and reopening channels of communication that had been frozen for years.

Key outcomes of the visit include:

• Preliminary Trade Deal: A foundational agreement to reduce tariffs, which includes a commitment for Canada to import 49,000 electric vehicles from China at preferential rates.

• Energy Cooperation: A pact covering both clean energy and fossil fuels. This reopens ministerial-level talks and could lead to Canada importing more Chinese clean-energy technology while increasing its fossil fuel exports to China. In 2024, only 2% of Canada's crude oil was sent to the Chinese market.

• Expanded Sector Pacts: Additional agreements were signed to boost cooperation in forestry, culture, and tourism.

Carney identified agriculture, energy, and finance as the sectors offering the most immediate opportunities for progress under the new strategic partnership.

From Diplomatic Freeze to Cautious Rapprochement

The renewed cooperation marks a turnaround from years of diplomatic tension. Relations between Ottawa and Beijing deteriorated sharply in 2018 after Canada arrested Huawei's Chief Financial Officer, Meng Wanzhou, on a U.S. warrant. China responded by detaining two Canadians on espionage charges, sparking a series of retaliatory tariffs and accusations of Chinese interference in Canadian elections.

Both sides have now signaled a desire to move forward. Xi told Carney that their previous meeting at the Apec summit in October 2025 "opened a new chapter" for improving relations. He added that the "healthy and stable development of China-Canada relations serves the common interests of our two countries."

During his trip, Carney also met with China's Premier, Li Qiang, and is scheduled to hold talks with business leaders to further discuss trade. While officials continue negotiations to finalize a broader agreement on lowering tariffs, the visit itself represents a calculated strategic pivot for Canada in a changing global economic landscape.

Federal Reserve Vice Chair for Supervision Michelle Bowman stated on Friday that a fragile U.S. job market, which could weaken quickly, means the central bank must be prepared to cut interest rates again if necessary.

Federal Reserve Vice Chair for Supervision Michelle Bowman stated the central bank should remain open to further interest rate cuts.

A Call for Policy Flexibility

In a speech for the New England Economic Forum, Bowman argued that without a "clear and sustained improvement in labor market conditions, we should remain ready to adjust policy to bring it closer to neutral." She emphasized that while monetary policy is not on a predetermined path, the Fed "should also avoid signaling that we will pause" on more rate cuts unless economic conditions change.

Bowman described the current monetary policy stance as "moderately restrictive" and stressed that officials should be forward-looking when setting rates. She advocated for using forecasts informed by a wide range of indicators and direct engagement with businesses and communities.

Balancing Inflation and Employment Risks

Bowman’s baseline forecast is for continued solid economic expansion and a labor market stabilizing near full employment as policy becomes less restrictive. However, she noted that the risks to the Fed's dual mandate are uneven.

She believes price pressures are likely to ease as the effects of trade tariffs diminish, bringing underlying inflation closer to the Fed's 2% target. In contrast, she sees the job market as "increasingly more fragile" and warned it "could continue to deteriorate in the coming months." Given that conditions can shift rapidly, Bowman argued for the Fed to remain nimble on policy decisions.

The Fed's Current Cautious Approach

The Federal Reserve enters 2026 with policymakers generally expecting inflation to moderate, the job market to stabilize, and economic growth to remain decent as uncertainty from President Donald Trump's policies subsides.

In the last months of 2025, the Fed cut its benchmark interest rate by three-quarters of a percentage point, bringing it to a range of 3.50%-3.75%. These cuts were intended to support a weakening job market while keeping enough restraint to lower high inflation.

At their December 9-10 meeting, Fed officials projected a single quarter-percentage-point rate cut for 2026. Since the start of the year, they have signaled no immediate urgency to act, preferring to wait for more evidence that inflation, still well above the 2% target, is on a downward path.

This cautious stance comes amid considerable pressure from President Trump to lower rates further. The president is expected to soon announce his choice to succeed Fed Chair Jerome Powell, whose term ends in May. Tensions recently escalated after it was revealed the administration is criminally targeting the Fed over costs related to its headquarters renovation, an action Powell described as a response to the central bank exercising independent judgment on rate policy.

The U.S. view

Equity market ‘meh’

European rally

Asian stocks on the rise

Source: cnbc

WASHINGTON, Jan 16 (Reuters) - White House adviser Kevin Hassett played down the federal criminal investigation into Federal Reserve Chair Jerome Powell on Friday, saying he expected there would be "nothing to see here".

The Trump administration has opened a criminal investigation into Powell over cost overruns for a $2.5 billion project to renovate two historical buildings at the Fed's headquarters complex. Powell, who disclosed the probe on Sunday, denies wrongdoing, and said the unprecedented actions were a pretext to put pressure on him for not satisfying U.S. President Donald Trump's long-running demands for sharply lower interest rates.

Hassett, the director of the National Economic Council who is a candidate to replace Powell, said in an interview with Fox Business Network that he wished there had been more transparency from the Fed about cost overruns of building renovations.

"The bottom line is, I expect, you know, Jay is a good man - I expect that there's nothing to see here, that the cost overruns are related to things like asbestos, as he says. But I sure wish they had been more transparent," Hassett said.

The probe drew criticism from foreign economic officials, investors and former U.S. government officials from both political parties - as well as lawmakers in Trump's own Republican Party, as politicizing sensitive policymaking.

Powell's term as Fed chair ends in May. Trump has yet to announce a replacement.

Hassett tried to minimize the federal criminal probe as a "simple request for information".

"I'm sure the information will be forthcoming shortly, and then things will move forward," he told "Mornings with Maria."

Source: Investing

The Trump administration is pursuing a dual-track strategy in its relationship with Venezuela, marked by high-level diplomatic meetings in both Caracas and Washington following the capture of President Nicolas Maduro earlier this year.

In a significant move, CIA Director John Ratcliffe met with Venezuela's acting president, Delcy Rodriguez, in Caracas. Simultaneously, Venezuelan opposition leader Maria Corina Machado held a meeting with President Donald Trump at the White House.

The Washington Channel: Trump Hosts the Opposition

Maria Corina Machado, a prominent liberal opposition figure, met with President Trump on Thursday. The meeting was highlighted by a significant gesture: Machado presented Trump with the Nobel Peace Prize medal she had received the previous year.

Venezuelan opposition leader Maria Corina Machado in Washington D.C. ahead of a high-profile meeting with President Donald Trump.

After what she described as an "excellent" meeting, Trump publicly thanked Machado for the medal on social media, calling it "a wonderful gesture of mutual respect." Machado is scheduled to speak with reporters on Friday at the Heritage Foundation, a conservative think tank with strong connections to the Trump administration.

The Caracas Channel: CIA Director Meets Interim Government

John Ratcliffe’s visit to Caracas makes him the most senior U.S. official known to have met with acting President Delcy Rodriguez since the U.S. attack on January 3 that resulted in the capture of Nicolas Maduro and his wife.

According to a U.S. official, the CIA chief met with Rodriguez at Trump's direction. The key objectives of the meeting were:

• To signal that the United States is seeking an improved working relationship.

• To discuss intelligence cooperation and economic stability.

• To demand assurances that Venezuela will not serve as a "safe haven for America's adversaries, especially narco-traffickers."

Political Tensions Remain High

The diplomatic overtures are set against a backdrop of deep political friction. During her first State of the Union address on Thursday, acting President Rodriguez appeared to take a swipe at Machado's visit to Washington.

"If I should visit Washington," Rodriguez told the Venezuelan people, "I will do so with my head held high, walking, not on my knees."