Trump and Xi may extend their truce, but Canada still faces a rare earth squeeze

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If the truce lapses, Canadian manufacturers could face more costly and less reliable access to Chinese magnets and processed rare-earth materials. That could increase pressure for Ottawa to de-risk more quickly by building the infrastructure and industry Canada needs to mine and process rare earths domestically.

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But there will be no quick Canadian replacement. Building rare-earth capacity takes years of sustained financing, permitting, infrastructure, and technical expertise. The Carney government has already signalled support for expanding the sector, but it will take several years.

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“You don’t just open up supply chains in these rare earths quickly,” said Mark A. Smith, CEO of Colorado-based critical-minerals developer NioCorp Developments.

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But Reza Hasmath, a politics professor at the University of Alberta, argues that a longer period of stability could be more useful to Canada’s industrial strategy than a supply crisis. A longer truce, he said, would give Canada more time to build the processing capacity and infrastructure it needs.

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“From a strictly rare earth perspective, though, I would suggest that the greater the extension, the better it is for (Canada) because it gives manufacturers much more stability, but it also buys us time to develop that industry a bit more,” he said.

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More broadly, however, he sees better U.S.-China relations as bad news for Ottawa.

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“When Chinese-U.S. relations are terrible, that gives (Canada) the most leverage, and when they are less tense and when there is a greater truce, generally speaking, it’s not to (Canada’s) advantage,” he said.

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Hasmath said a truce is still preferable for Canadian manufacturers, but he explained that Washington has more incentive to seek Canadian alternatives when its relationship with Beijing deteriorates.

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According to Ashton, no truce or a shorter truce extension could give Beijing more incentive to preserve commercial options with Canada. That could boost Ottawa’s bargaining leverage as it seeks to extend Chinese tariff relief on Canadian canola meal, lobster, and crab, which is set to expire in December.

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Nagy cautions, however, that if the U.S. administration takes a harder line on Beijing, Trump may demand Ottawa’s alignment under threat of more tariffs.

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But the same stability that protects manufacturers could weaken the political case for building Canadian alternatives, some warned. More predictable Chinese supply could ease the political urgency — and public-financing momentum — to build Canadian processing capacity.

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“On the whole, it’s beneficial to industry at large, but it could slow down the momentum for the critical minerals industry in Canada specifically,” said Chiu.

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Smith said the underlying case for diversification should survive either way.

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“We cannot sit here and be dependent on any single country for any single item. We have to have alternatives,” he said.

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But Hasmath and Nagy agree an extended truce could pose another downside: a wider U.S.-China trade deal could undercut Canadian exporters.

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Most trade watchers believe Beijing will agree — whether it’s this week or in the weeks to come — to buy more U.S. agricultural goods and Boeing aircraft and that the two sides will announce an intention to begin AI-related security talks. Washington may offer China limited relief on access to lower-grade semiconductors, and it may reduce tariffs on some Chinese imports.

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Those possible U.S. commercial wins could hurt Canada, because if Beijing buys more U.S. products, Canadian exporters may lose share in those markets.

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“The more the Chinese buy from the Americans, that’s less of our exports going to the Chinese,” Hasmath said, pointing to three sectors that could be hit hard: agriculture, aircraft, and LNG.