Highlights
- China controls 70% of global rare earth mining and 90% of refining capacity.
- China uses export controls as a strategic geopolitical leverage mechanism.
- Export restrictions target seven critical rare earth elements.
- These restrictions cause significant disruptions in the automotive, technology, and defense sectors worldwide.
- Western nations are responding by:
- Increasing domestic production
- Recycling rare earth materials
- Strategically stockpiling resources
- Forming international partnerships to reduce dependence on Chinese rare earth supplies
Abstract
This report examines China’s escalating use of rare earth export controls as a sophisticated tool of geopolitical leverage, stemming from decades of strategic industrial policy. With China controlling approximately 70% of global rare earth mining and 90% of refining capacity, its dominant position presents a significant vulnerability for global industries. The April 2025 controls, specifically targeting seven medium- and heavy-rare earth elements and encompassing high-performance magnets, are analyzed as a nuanced licensing system rather than an outright ban, functioning as a non-tariff barrier and a de facto quantitative restriction.
While China formally justifies these measures on the grounds of national security, resource conservation, and environmental protection, their timing and impact strongly suggest retaliatory measures against Western trade and technology restrictions. The immediate consequences have been severe, leading to widespread supply chain disruptions, significant production pauses in the automotive and technology sectors, and notable price volatility for critical rare earths. The defense sector is particularly vulnerable, as these materials are crucial for numerous US defense technologies.
In response, Western nations, including the United States and the European Union, are pursuing diversification strategies through domestic production, recycling, strategic stockpiling, and international partnerships. However, the recent US-China framework agreement offers only temporary and limited easing of some export restrictions yet excludes military-grade rare earths. This oversight shows that structural vulnerabilities in global supply chains will persist so long as China is willing to weaponize its rare earth dominance. The report concludes that a lasting solution necessitates a sustained international effort to build resilient and diversified rare earth supply chains that prioritize national and economic security over sole economic efficiency.
China’s Dominant Position in the Global Supply Chain
China has cultivated a near-monopoly over the global rare earth supply chain, a position that represents a structural and deeply entrenched vulnerability for the rest of the world. This dominance is not an accidental market outcome but the result of deliberate, decades-long strategic foresight and industrial policy. In the 1980s, while Western nations largely overlooked the strategic potential of rare earth elements (REEs) in the 1980s, China recognized their importance and embarked on a sustained national strategy to control their production and processing. Today, China controls approximately 70% of global rare earth mining and an overwhelming 90% of the world’s refining capacity. This extensive control means that viable alternatives outside of China remain significantly limited and often come with substantial cost or quality disadvantages, making global industries heavily reliant on Chinese supply. This long-term strategic investment has allowed China to transform from primarily a raw material supplier into a high-tech manufacturing center, solidifying its grip on this critical sector. China’s recent imposition of export controls on rare earth elements signifies a deliberate and sophisticated escalation of its geopolitical leverage, rooted in these decades of strategic industrial policy.
China’s Evolving Strategy of REE Export Controls
The April 2025 Controls: Targeted Minerals and Licensing Mechanisms
In April 2025, China introduced stringent new export controls on specific rare earth elements, with their significant market impacts becoming broadly evident in May 2025, with impacts on mergers & acquisitions and a significant 93.3% year-on-year decline in rare earth magnet exports to the United States. These regulations specifically target seven medium and heavy rare earth elements: samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. These particular elements are crucial for high-performance magnets used in electric vehicles, wind turbines, and defense technologies. The scope of the rules extends beyond pure elements to include their oxides, alloys, compounds, and mixtures, critically encompassing high-performance sintered neodymium-iron-boron (NdFeB) magnets, which are essential in advanced manufacturing.
Table 1: Key Rare Earth Elements Targeted by China’s April 2025 Export Controls and Their Primary Applications
Element Name | Primary Applications |
|---|---|
Samarium | High-performance magnets (e.g., SmCo magnets), defense technologies, medical devices, nuclear reactors |
Gadolinium | High-performance magnets, medical imaging (MRI contrast agents), nuclear reactors, data storage, sonar systems, radar signal amplification |
Terbium | High-performance magnets (NdFeB alloys), green phosphors in fluorescent lamps, solid-state devices, electrical propulsion systems in naval vessels |
Dysprosium | High-performance magnets (NdFeB alloys, enhancing heat resistance), lasers, nuclear control rods, electrical propulsion systems in naval vessels |
Lutetium | Medical imaging (PET scans), catalysts, high-refractive-index glass, next-generation radar and detection systems |
Scandium | Lightweight alloys (aerospace, sporting goods), solid oxide fuel cells, high-intensity discharge lamps, aircraft and unmanned aerial systems |
Yttrium | Lightweight alloys, lasers, phosphors (TV screens, LEDs), superconductors, medical applications, aircraft and unmanned aerial systems |
Neodymium | High-performance magnets (NdFeB, critical for EVs, wind turbines), lasers, catalysts |
Praseodymium | High-performance magnets (NdFeB), aviation alloys, glass coloring, catalysts |
Note: While the April 2025 controls specifically targeted seven elements, neodymium and praseodymium are also critical components of the affected NdFeB magnets and have seen significant impact due to their inclusion in processed magnet restrictions.
The Licensing System
China has implemented a sophisticated export licensing system rather than an outright ban, which allows for granular control over supply and destination without resorting to an overt, globally condemned export prohibition. Under this system, companies seeking to export these restricted materials must apply for special licenses from China’s Ministry of Commerce. The application process is highly demanding, requiring extensive documentation that includes pre-approval licensing, detailed end-use verification, and comprehensive technical specifications of the products.
These requirements require foreign companies to submit a concerning amount of proprietary product information to directly to Chinese export companies and the Chinese government, which has a history of facilitating IP theft of foreign companies for decades. As part of these new rules to export rare earth elements, exporters must provide a signed End-Use Certificate, which often requires authentication by the Chinese embassy or a local notary public, along with photographic evidence ofthe magnet’s actual assembly environment, a chemical composition report,and a detailed description of the product’s manufacturing process. This rigorous verification aims to ensure that the materials will not be diverted for sensitive applications such as military, nuclear, or aerospace uses.
The approval process is protracted, typically taking 20-30 working days, and exporters are advised to build in a 45-day buffer when planning production and shipping schedules. Despite official statements from China’s Ministry of Commerce about “accelerating the review” of applications and approving “a number” of requests, actual approval rates have remained significantly below historical export volumes. Some reports indicate that only 25% of export license requests have been approved since the rules took effect, leading to substantial delays and disruptions. This indicates that the licensing system functions as a sophisticated non-tariff barrier and a de facto quantitative restriction, enabling Beijing to throttle exports and exert precise control over quantities and destinations, effectively operating as a flexible quota system.
China’s Strategic Motivations: Geopolitics, Resource Nationalism, and Industrial Advancement
Retaliatory Measures
The recent export controls are widely interpreted as direct retaliatory measures against US tariffs on Chinese goods and restrictions on China’s access to advanced technology, particularly semiconductors. For instance, the implementation of rare earth controls in May 2025 directly followed a 300% increase in US tariffs on Chinese electric vehicles and technology products in April 2025, and earlier US technology export restrictions targeting the Chinese semiconductor industry in March 2025. This action is part of a broader, escalating trend of economic warfare. In 2023, China imposed export restrictions on gallium, germanium, and antimony, and also banned the export of rare earth processing equipment. The progression from general export restrictions on raw materials to targeted bans and controls on processed, higher-value products like rare earth magnets signifies an increasingly sophisticated and deliberate economic warfare strategy by China. This approach aims to compel foreign companies to either relocate manufacturing to China or invest heavily in developing entirely new, costly value chains outside China.
National Security and Dual-Use Justification
China formally justifies these actions as necessary to safeguard its national security and fulfill international non-proliferation obligations, citing the dual-use (civilian and military) nature of these materials. This rationale extends to previous controls on gallium, germanium, and antimony, which are vital inputs for defense technologies and advanced manufacturing. China’s official narrative, emphasizing “streamlining” and “rules-based trade”, represents a strategic communication effort designed to deflect international accusations of weaponization. However, the actual, documented impact on high-value processed products, such as magnets, reveals a clear and targeted retaliatory intent, despite claims of maintaining overall export volumes.
Resource Conservation and Environmental Protection Claims
Another motivation for the controls also includes concerns for resource conservation, as China’s substantial rare earth reserves, while significant, are not limitless. While Beijing frames these measures as necessary to mitigate the environmental harm resulting from the historic overexploitation of these resources, part of China’s economic model (deemed the China Inc. model by Dr. Shaomin Li) systematically exploits a “low human rights advantage.” When taking a macro-view of the Chinese economy and its treatment of human rights in minority areas like Tibet, Xinjiang, and Inner Mongolia, where many REE mines exist, there are pervasive and deliberate human rights abuses towards minority communities. Since many REE companies are state owned or have heavy state involvement, there is already a tacit approval of continued human rights abuses and policies that have a negative environmental effect in the name of economic growth and geopolitical competition. Chinese Communist Party rhetoric around resource conservation and environmental protection is meant to pass the buck on to foreign companies that rely on Chinese REEs and to provide what sounds like a reasonable justification to the export controls to foreign governments who value ESG.
Value Chain Advancement and Industrial Policy
The most crucial strategic driver behind these controls is the advancement of China’s competitive downstream industries. By restricting the export of higher-value processed magnets rather than merely raw materials, China actively encourages the domestic manufacturing of more sophisticated products. This aligns with China’s long-term industrial policies, such as the 14th Five-Year Plan and the “Made in China 2025” initiative, which explicitly emphasize moving up the value chain in strategic industries and transforming China into a global high-tech manufacturing hub. This control over supply also grants China significant influence over global rare earth pricing, as demonstrated by the dramatic 300-500% price surges observed during the 2010-2015 period of previous restrictions.
Global Impact and Industry Vulnerability
Supply Chain Disruptions and Price Volatility
The implementation of China’s rare earth export controls has led to immediate and significant disruptions across global supply chains. The licensing system has resulted in temporary de facto export bans and considerable backlogs in license approvals, causing widespread delays and difficulties for companies worldwide in obtaining critical rare earths. The impact on rare earth magnet shipments to the United States has been particularly severe, with data from May 2025 revealing a 93.3% year-on-year decline and an 81% month-on-month drop from April, falling from 246.3 tons to just 46.4 tons. Permanent magnets constitute approximately 90% of these affected shipments.
Beyond the United States, the controls have broadly affected global supply chains. Total Chinese magnet exports fell by 74.3% in volume and 76.1% in value year-on-year in May 2025. Exports to Germany dropped by 70%, and shipments to Japan declined by 84.1%. This widespread impact demonstrates that while the controls may be politically motivated by US-China trade tensions, their implementation has affected global supply chains indiscriminately, causing significant disruptions even for countries maintaining cordial relations with Beijing. The uncertainty and reduced supply have predictably put upward pressure on rare earth prices. Dysprosium oxide prices have increased by 27% since the restrictions began, terbium oxide has seen a 19% price increase, and neodymium-praseodymium alloy prices rose by 15% in anticipation of further controls.
The Automotive Industry: Acute Vulnerability and Production Pauses
The automotive sector is acutely vulnerable to these restrictions due to its heavy reliance on rare earths for various components in both electric and conventional vehicles. Rare earths are vital for electric motors, sensors, steering systems, automatic transmissions, throttle bodies, alternators, seat belts, speakers, lighting systems, and catalytic converters. Electric vehicles, in particular, require approximately 3-5kg of rare earth magnets per vehicle, making magnet supply a potential bottleneck for production scaling as manufacturers commit to electrification timelines.
The shortages have already led to significant production challenges and pauses. Ford Motor Co. temporarily shut down production of its Ford Explorer at its Chicago plant for a week in May 2025 due to a rare-earth shortage. The European Association of Automotive Suppliers confirmed that several European parts manufacturers have already halted production, citing a shortage of critical components. Japanese automakers Nissan and Suzuki Motor have also reported supply disruptions, with Suzuki suspending production of its Swift car. Even German automakers, despite extensive partnerships with Chinese battery manufacturers, are beginning to report supply bottlenecks. While Volkswagen initially stated no immediate impact, and Mercedes-Benz reported no “direct restrictions,” both companies have implemented plans to monitor the situation and stockpile key components. Some car makers and suppliers are now considering shifting manufacturing to China to safeguard against future restrictions, while others are exploring magnet-free or reduced-magnet motor designs.
Defense Sector: National Security Implications
Rare earths are essential for numerous US defense technologies, making the sector highly vulnerable to China’s export controls. These materials are critical for military applications such as fighter jets, missiles, radar and sonar systems used for collision prevention, surveillance, and navigation, as well as communications and display technologies required by soldiers, sailors, and airmen. The restrictions pose a significant risk to the US defense industrial base, potentially widening the gap between US and Chinese military capabilities. The US military’s war-fighting capabilities would be severely compromised if rare earth exports were banned or restricted.
The Department of Defense, in its 2024 National Defense Industrial Strategy, set a target to establish a fully integrated mine-to-magnet rare earth supply chain capable of meeting all US defense requirements by 2027. Since 2020, the DOD has invested over $439 million to strengthen domestic supply chains. However, the United States currently lacks the mine-to-magnet capability at scale, particularly for heavy rare earth separation capacity. This continued reliance on China for specialized rare earths, including samarium, which are crucial for military applications, means that even recent agreements to ease restrictions do not fully address the defense sector’s critical needs.
Technology Sector: Broader Economic Repercussions
The technology sector, encompassing everything from semiconductors to consumer electronics and AI infrastructure, is also profoundly impacted by China’s rare earth export controls. The chipmaking process relies on critical rare earth elements for applications ranging from high-precision tool parts to wafer fab materials, including lithography systems and wafer-handling robots. Specific rare earths like dysprosium, terbium, neodymium, praseodymium, cerium, lanthanum, and yttrium are particularly critical for the chip industry, with neodymium being arguably the single most critical rare earth for electronics.
Analysts anticipate that if export restrictions remain in force or tighten through 2025-2026, companies not diversified away from Chinese sources could face production slowdowns, higher production costs, reduced wafer throughput, and potential product launch delays for devices reliant on affected components. While some integrated device manufacturers have preemptively secured several months of supplies, and semiconductor equipment makers are increasing inventories, the long-term impact on the industry remains a significant concern. Consumer electronics, including smartphones and laptops, also require significant amounts of rare metals for their production. The broad dependency of high-performance motors and cooling systems in artificial intelligence infrastructure on rare earths further underscores their strategic economic asset status. The current supply disruption highlights years of complacency in diversifying rare earth supply chains, as what began as China’s low-cost processing advantage has evolved into a strategic vulnerability for global technology.
Global Diversification Efforts and Strategic Responses
United States: Reshoring, Investment, and Strategic Alliances
Domestic Production and Processing
The United States is accelerating efforts to reduce its reliance on Chinese rare earths, which constituted 77% of US rare earth imports in 2024. Central to this strategy is investment in domestic mining and processing capabilities. MP Materials, owner of the sole active US rare earth mine at Mountain Pass, California, is expanding its operations and developing a new Texas magnet plant with General Motors, expected to begin production in late 2025. This strategic shift aims to transition MP Materials from a raw material supplier to a magnet producer, boosting margins and reducing China dependency. Another project gaining government endorsement is Dateline Resources’ Colosseum rare earths project in California, which President Trump has called “America’s second rare earths mine”.
The US government is actively supporting these initiatives, with discussions around using the Defense Production Act to fund rare earth element-related projects, including mining, processing, and downstream technologies. However, building these capabilities faces significant challenges, including long lead times, complex environmental permitting processes, and high capital costs. A notable vulnerability remains the lack of heavy rare earth separation capacity in the United States, though efforts to build this capability are underway.
Recycling and Innovation
Rare earth recycling is emerging as a sustainable solution to secure North America’s critical minerals supply chains, offering a faster route to building domestic capacity while mitigating environmental impacts associated with traditional mining. Advancements in recycling technologies are making rare metal recovery more efficient and economically viable. These include innovative processes like flash joule heating, AI-driven sorting systems, and the Selective Extraction-Evaporation-Electrolysis process, which has achieved high recovery rates and purities for neodymium and dysprosium. Companies are also pioneering new approaches. Apple, for instance, has developed robots like Taz and Dave specifically designed to recover rare earth magnets from electronic devices. Noveon Magnetics has introduced a method to directly recycle magnets without complete rare earth separation, significantly reducing costs and energy consumption. Additionally, CoTech Holdings, through a joint venture with HyProMag USA, is bringing to market rare earth magnet recycling technology that uses hydrogen to extract rare earth magnet alloy powders from end-of-life products efficiently and with lower emissions. These initiatives contribute to a circular economy by reintroducing materials into the supply chain, reducing waste, and promoting sustainable resource utilization.
Strategic Stockpiling and Policy Support
Beyond direct production, the United States is pursuing strategic stockpiling and leveraging policy support to enhance supply chain resilience. The Critical Minerals Strategic Reserve is part of broader efforts to manage resource security. Legislative frameworks such as the CHIPS Act and the Inflation Reduction Act provide significant incentives, including the Section 45X tax credit, which could save manufacturers billions by 2031 and incentivize clean technology manufacturing. These policies aim to create a more favorable environment for domestic production and processing by addressing market challenges and investment risks.
International Partnerships
Recognizing that full self-reliance is a long-term endeavor, the United States is also forging strategic alliances to diversify rare earth sources. Partnerships include a US-Saudi collaboration to build a complete supply chain, including a refining hub, offering a potentially low-cost and geopolitically stable source. Ukraine, a country with significant rare earth reserves after China, presents another potential source, contingent on managing political risks. Additionally, Critical Metals Corp. is in line for a $120 million loan to fund the Tanbreez rare earth project in Greenland, which holds one of the largest heavy rare earth contents globally and aims for production by 2026. These partnerships are crucial for unlocking new deposits and establishing processing and manufacturing hubs outside of China.
European Union: Critical Raw Materials Act and Global Gateway
Policy Framework
The European Union has made securing critical raw materials a top strategic priority, driven by the imperative for its green and digital transitions and defense capabilities. The EU’s Critical Raw Materials Act, a legislative effort, sets specific benchmarks for 2030: at least 10% of the EU’s annual consumption of strategic raw materials should be extracted within the EU, 40% processed within the bloc, and 15% recycled. This builds upon earlier initiatives like the “Critical Raw Materials Resilience: Charting a Path towards Greater Security and Sustainability” report and the establishment of the European Raw Materials Alliance, all part of the EU’s wider effort to achieve strategic autonomy and net-zero emissions by 2050.
Strategic Projects
To achieve its ambitious targets, the European Commission has designated 47 Strategic Projects within the EU (approved March 2025) and an additional 13 non-EU Strategic Projects (approved June 2025). These projects are recognized for their significant contribution to the security of the EU’s supply of strategic raw materials and benefit from preferential access to finance and other advantages. Examples of these projects include lithium mining in Argentina’s “Lithium Triangle,” rare earth processing in Namibia, and nickel extraction in Indonesia. These initiatives align with the EU’s Global Gateway strategy, a €300 billion investment plan aimed at countering China’s Belt and Road Initiative by supporting infrastructure and development in partner countries, while also promoting sustainable development, good governance, and environmental standards.
Diversification Challenges
Despite these concerted efforts, the EU faces significant challenges in diversifying its rare earth supply chains. The EU remains heavily reliant on China, importing up to 98% of its rare earth elements from China as its single source. While these elements are found elsewhere, their extraction and processing outside China are often not economically viable, entrenching China’s dominance. Efforts to shift supply chains, particularly to sub-Saharan Africa, face major obstacles, including increasing exposure to Environmental, Social, and Governance risks and competition from Chinese firms already established in these regions. The reality is that China’s pivotal role in global raw material markets is not easily circumvented, and achieving full strategic autonomy in critical raw materials under current global economic conditions may be an unrealistic goal.
The US-China Framework Agreement: A Temporary Truce or Lasting Shift?
In June 2025, the United States and China reportedly reached a “framework” agreement to ease trade tensions, particularly concerning China’s export of rare earth elements and magnets. These critical materials are vital for the automotive, robotics, and defense sectors. In exchange for China resuming these exports, the United States is expected to maintain a 55% composite tariff on Chinese imports, while China will keep a 10% retaliatory tariff on select US goods. The agreement also reportedly allows for the resumption of visas for Chinese students to attend American universities. This deal has been presented as a step towards de-escalation and more pragmatic engagement.
However, the implementation details remain unclear, and skepticism persists about the agreement’s long-term impact. US companies have reported minimal movement on export permits, and the ease of rare earth export licenses for civilian use is reportedly limited to six months, requiring renewal. Critically, the agreement does not cover specialized rare earths for military applications, meaning the United States will not receive these for defense purposes through this deal. The framework does not address underlying structural issues like intellectual property theft, industrial subsidies, or cybersecurity threats, nor does it resolve the broader competition for technological supremacy.
Analysts widely agree that China’s dominance in rare earths continues to give it significant geopolitical leverage. This recent agreement, while offering temporary relief, underscores the fragility of US supply chains and its vulnerability to China’s control over these strategic resources. The consensus is that a lasting solution requires the United States to build alternative and independent supply chains, including domestic rare earth mining, refining, and magnet manufacturing, as well as collaborating with international partners. The ongoing uncertainty in US-China trade relations will likely deter significant cross-border investment, further highlighting the urgent need for permanent solutions rather than temporary stopgaps.
Conclusion
China’s recent imposition of export controls on rare earth elements signifies a deliberate and sophisticated escalation of its geopolitical leverage, rooted in decades of strategic industrial policy. These controls, particularly the nuanced licensing system targeting high-value processed magnets, function as a powerful non-tariff barrier, enabling Beijing to exert granular control over global supply without resorting to outright bans. While framed by China as measures for national security, resource conservation, and value chain advancement, their timing and targeted impact on processed products strongly indicate a retaliatory response to Western trade and technology restrictions.
The immediate consequences have been severe, manifesting as widespread supply chain disruptions, significant production pauses in the automotive and technology sectors, and notable price volatility for critical rare earths. The vulnerability of the defense sector, heavily reliant on these materials for advanced military applications, underscores the direct national security implications of China’s dominance.
In response, Western nations are pursuing multi-faceted diversification strategies. The United States is investing heavily in domestic mining, processing, and recycling capabilities, alongside forging strategic international partnerships. Similarly, the European Union, through its Critical Raw Materials Act and Global Gateway initiatives, is actively designating strategic projects both within and outside its borders, despite facing challenges related to economic viability and ESG risks.
The recent US-China framework agreement, while offering a temporary easing of some rare earth export restrictions, is not a definitive resolution. Its limited scope, particularly the exclusion of military-grade rare earths and the temporary nature of eased licenses, highlights the enduring structural vulnerabilities in global supply chains. This agreement serves more as a fragile truce than a lasting shift, underscoring China’s continued willingness to weaponize its rare earth dominance. The long-term outlook necessitates a sustained, collective international effort to build resilient, diversified rare earth supply chains, moving beyond a sole focus on economic efficiency towards an imperative for national and economic security.
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