Highlights
- China demands South Korean companies halt exports of rare earth products to US defense firms.
- Threatening sanctions and economic retaliation.
- Beijing’s export controls target critical minerals essential for defense, technology, and high-tech manufacturing industries.
- The move represents a strategic geopolitical maneuver.
- It forces US allies like South Korea into challenging economic and diplomatic positions.
On April 22, 2025, Reuters reported (opens in a new tab) a significant escalation in the ongoing trade tensions between China and the United States — one that now places South Korea in an especially precarious position. According to Reuters, China’s Ministry of Commerce recently sent formal letters to South Korean companies, demanding they halt exports of products containing Chinese-sourced rare earth minerals to U.S. defense firms. The companies targeted include those manufacturing power transformers, batteries, displays, electric vehicles, aerospace components, and medical equipment — all of which rely heavily on these critical metals. The message was clear: failure to comply could result in sanctions or other punitive measures.
This move follows a broader pattern of retaliation by Beijing against the United States, which earlier this month saw the Chinese government impose export restrictions on six heavy rare earth elements and magnets — a direct counter to the latest round of tariffs imposed by U.S. President Donald Trump. As the Korea Economic Daily reported (opens in a new tab) on the same day, these new restrictions have effectively created a bottleneck for exports, with the licensing process for such materials taking around 45 days. In practice, this amounts to an effective ban, significantly delaying the flow of rare earth minerals that are vital not just for commercial goods, but also for defense applications ranging from drones and electric vehicles to missile guidance systems and advanced semiconductors.
The Korea Economic Daily further noted that this was the first time Beijing has formally exerted such export control pressure on companies outside of the United States with ties to the U.S. defense industry. Two South Korean transformer manufacturers, unnamed in the report, confirmed receipt of these official warnings. The threat isn’t merely rhetorical. The letters cautioned that violations could lead to severe sanctions or regulatory actions, though specifics on potential penalties were not disclosed. The greater concern among Korean firms is that China could go even further by fully cutting off the supply of rare earth metals altogether — a scenario that would have severe consequences for Korea’s heavily export-dependent economy.
The Jerusalem Post, also reporting (opens in a new tab) on April 22, echoed these developments, emphasizing the seriousness of China’s unprecedented move to control not only its own trade relations with the United States but also those of third-party nations like South Korea. The Israel-based news highlighted the fear among Korean companies that this new policy could be the first in a series of retaliatory measures aimed at forcing countries to choose between their economic relationships with the U.S. and with China. The timing is no coincidence. These actions arrive just weeks after China expanded its blacklist to bar 27 U.S. military contractors from doing business with Chinese firms — a response to the United States’ recent decision to sharply increase tariffs on Chinese goods by 50 percent.
Beijing’s decision to tighten the noose around rare earth exports has deeper strategic implications. As noted in the Korea Economic Daily’s analysis, approximately 90% of rare earth magnets, which are crucial for a wide range of applications, including AI servers, smartphones, jet engines, and laser systems, are produced in China. Although alternative suppliers exist, none currently match China’s scale, refining capacity, or cost structure. By selectively applying these restrictions, China is not just striking back at Washington; it is forcing key U.S. allies, such as South Korea, into an uncomfortable geopolitical bind.
As Han Ah-reum, a senior researcher at the Korea International Trade Association, pointed out in the Korea Economic Daily, this is the latest example of how China has been tightening control over sensitive exports since implementing its Export Control Law in 2020. What makes the current situation particularly tense is the overlap of interests and dependencies among the three economies involved. For South Korea, whose major conglomerates rely heavily on both Chinese materials and U.S. military and commercial contracts, being caught in the middle of a geopolitical standoff between the world’s two largest economies presents a lose-lose dilemma.
The economic and diplomatic consequences of this unfolding dispute could be far-reaching. Should Beijing continue down this path, it may not only jeopardize Korea’s thriving high-tech and defense sectors but also destabilize global supply chains for critical industries, which are already strained by years of tariff battles and pandemic-related disruptions. As the proverb goes, “When elephants fight, it is the grass that suffers” — and for now, it seems South Korea is the patch of grass caught underfoot.
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