China’s rare earth export controls have drawn global attention – from the call between Presidents Donald Trump and Xi Jinping in earlier this month to the production halts affecting U.S., Japanese and European automotive manufacturers. Amid escalating tensions with the United States and its allies, this dominance has enabled – and is likely to continue enabling – Beijing to leverage rare earths to advance its geostrategic objectives through export restrictions.
China dominates the global rare earth supply chain, accounting for approximately 70 percent of global mining and 90 percent of refining capacity. Despite significant efforts by global players to establish alternative rare earth supply chains, they remain highly vulnerable to China’s export restrictions on rare earth elements. This raises critical questions: Why have these efforts fallen short, and what lessons can the world draw from China’s success?
China’s Weaponization of Rare Earths in Global Geopolitics
Beijing’s weaponization of rare earths has proven relatively effective in global affairs. China previewed this strategy in 2010, when it suspended exports to Japan over a maritime dispute. The restriction triggered industry-wide panic in Japan, which depended on China for nearly 90 percent of its rare earth imports. Prices rose tenfold.
As geopolitical conflicts intensify globally, Beijing is increasingly leveraging rare earths as a tool of retaliation. For instance, in April 2025, China imposed export restrictions on seven rare earth elements and associated magnets – materials critical to the defense, energy, and automotive sectors – in response to the tariff war initiated by U.S. President Donald Trump. Overturning those restrictions became a crucial U.S. goal in trade negotiations.
Earlier this month, the White House signaled a conditional willingness to ease semiconductor export controls if Beijing accelerates rare earth exports. Despite recent talks in London, Beijing has not committed to issuing export approvals for certain high-performance rare-earth magnets, which are critical to U.S. defense suppliers to produce fighter jets and missile systems. China also reportedly limited its easing of rare-earth export licenses for U.S. manufacturers to six months.
The impact of the restricted supply is already being felt. Suzuki suspended production of its Swift model (excluding the Swift Sport version) from May, due to supply disruptions caused by China’s rare earth export restrictions. Several European parts plants and production lines have also shut down due to these constraints.
The Formula Behind China’s Rare Earth Edge
China’s dominance in the rare earth industry is not coincidental, but the result of decades of targeted state efforts. In contrast, while countries such as Brazil, India, Russia, and Vietnam hold considerable amounts of rare earth reserves, they lack sufficient state support to capitalize on this critical industry. Notably, China possesses a rare earth processing capacity of 220,000 tonnes annually, approximately five times the combined capacity of all other countries. A disparity this large will require years for others to overcome.
Small wonder, then, that international efforts to diversify supply have so far done little to mitigate the disruption caused by China’s tightened control over rare earth exports.
The first essential element of China’s success is its lead in technology. Although rare earth elements are not actually rare in terms of their abundance in the Earth’s crust, a major challenge lies in separating them from surrounding materials and from each other, as well as in their purification. China acquired several processing technologies from France in the 1980s and began working on establishing itself as a leading rare earth processing power. In China’s Twelfth Five-Year Plan, announced in 2011, magnets, phosphors, hydrogen storage materials, and abrasive polishing materials were prioritized to expand the downstream rare earth industry and promote advanced manufacturing.
As a result of such state-led development, between 1950 and 2019, China applied for nearly 26,000 rare earth-related patents – significantly more than Japan’s 13,920 and the United States’ 9,810
Second, China’s relatively lax environmental regulations have also facilitated large-scale processing. Consequently, non-Chinese companies – whether by choice or necessity – have increasingly outsourced the highly polluting refining processes to China. For example, China’s development of rare earth elements accelerated in the mid-1970s, as U.S. mine closures driven by environmental movements and regulations cleared the way for China to become the dominant producer. Subsequently, China established itself as a dominant player in rare earth production in the 1990s.
Third, China’s strong state control over its rare earth industry allows it to enforce national production and export quotas more effectively and thereby leverage rare earths to advance its geostrategic objective globally. For instance, the Chinese government consolidated the entire rare earth element industry from over 100 firms into six state-owned enterprises and directly funded national research labs for rare earth smelting and separation, following the Twelfth Five-Year Plan in 2011. These state-owned enterprises accounted for 99.9 percent of China’s rare earth production quota in the first half of 2016. Additionally, in 2022, three large mining conglomerates and two research institutes merged into the China Rare Earth Group, enabling China to control 30–40 percent of the global supply.
Under the direct oversight of the State Council, such state-owned enterprises significantly strengthened Beijing’s ability to influence the pricing of key rare earth elements. Subsequently, China’s industrial policy depressed the global price of rare earths, discouraging other countries from entering the market. For instance, the Chinese government offers generous credit for rare earths used in strategic technologies. Investing ahead of demand has led to oversupply and lower prices. For example, the price of neodymium-praseodymium (NdPr) reportedly fell by 20 percent between January and July 2024. China’s centralized system, however, allows it to absorb losses to retain control over critical materials.
Why China’s Rare Earth Edge Endures
Countries such as Japan, the U.S., and Australia have also invested in the rare earth industry, but these efforts have had a limited effectiveness in building a rare earth empire to rival China’s. The low-price barrier created by China’s industrial policies has hindered, and are likely to keep hindering, alternative rare earth production efforts.
For example, after China halted rare earth exports to Japan in 2010, Hitachi Metals – later renamed Proterial – responded to pressure from the Obama administration by building a rare earth magnet factory in North Carolina between 2011 and 2013. However, the factory’s production costs were significantly higher than those of large-scale facilities in Ganzhou. U.S. companies were unwilling to pay a premium for domestically produced magnets and continued sourcing from China. As a result, Hitachi eventually shut down the factory in 2020, and the equipment was placed in storage.
In May, Australia’s Lynas Rare Earths became the first producer of heavy rare earths outside China, following the successful production of dysprosium at its plant in Malaysia. However, despite recent efforts made by the Australian government – such as the $1.2 billion Critical Minerals Strategic Reserve – oversupply is expected to further erode profitability and discourage investments outside China.
As of this month, the U.S. startup Phoenix Tailings is reported to be working on addressing a key bottleneck in reducing dependence on China, converting separated rare earths into high-purity metal ingots for magnet manufacturing. However, its limited production capacity means it currently lacks the economies of scale to compete with China’s lower-cost output.
The United States is also struggling to develop a rare earth supply chain as robust as China’s. Currently, it has only one operating rare earth mine: Mountain Pass in California. Opening a rare earth mine in the U.S. can take up to 29 years due to stringent environmental regulations. These lengthy approval processes hinder progress despite government-led initiatives, such as the Department of Defense’s goal to establish “mine-to-magnet” capacity across all critical nodes of the rare earth supply chain. There are also concerns that China could deliberately increase rare earth exports to suppress global prices, rendering new U.S. projects economically unviable and unsustainable.
Conclusion: Industrial Policies Shaping Geopolitical Dynamics
Amid escalating tensions with the U.S. and its allies, China is likely to increasingly leverage rare earths to advance its geostrategic objectives. Beijing’s industrial policy in the rare earth sector has effectively established the country as a dominant player, enabling it to create durable chokepoints for its rivals through export restrictions. Given that state-led efforts outside China to catch up remain inadequate, global industries heavily reliant on rare earths are compelled to adopt stockpiling strategies to mitigate supply chain vulnerabilities.
Future geopolitical rivalries are likely to witness national industrial policies increasingly exerting influence beyond domestic borders, shaping the global geopolitical landscape. This is particularly evident in major powers such as China and the United States, where extensive state subsidies could be deployed to strengthen the international competitiveness of domestic champion firms. With high levels of global dependence subsequently established, these firms can serve as commercial instruments through which states pursue broader geostrategic objectives.