China’s recent export restrictions on six rare earth elements (REEs) and rare earth magnets have sent shockwaves through global industries. These materials are essential for a wide range of technologies, from clean energy to military applications. The electric vehicle (EV) sector is especially vulnerable, with some manufacturers warning of potential factory shutdowns if the curbs persist. The world’s heavy reliance on China—responsible for about 70% of rare earth mining and nearly 90% of refining—has exposed a fragile supply chain. China also dominates magnet production, accounting for nearly 90% of the global output.
While not a full export ban, the new rules require government approval for overseas shipments, introducing delays and uncertainty. This move may offer China short-term influence but carries long-term risks. China may control the present of rare earths, but its grip on the future is far from assured.
Rare Earths: A Misleading Name
The term “rare earth elements” is somewhat misleading. These 17 elements—including neodymium, dysprosium, and praseodymium—are not actually rare in the Earth’s crust. For instance, cerium is more abundant than copper. What makes them challenging is the difficulty of finding them in high enough concentrations to mine economically and the complex process of separating them from one another, as they naturally occur together.
Significant deposits exist across the globe, including in the U.S., Australia, India, Brazil, and parts of Africa. The reason China dominates the sector isn’t a lack of global resources but decades of calculated policy and investment by Beijing—paired with global complacency.
How China Built Its Rare Earth Monopoly
China’s dominance in rare earths stems not from geology but geopolitics. Starting in the 1980s, China prioritized the industry by offering subsidies, low-interest loans, and relaxed environmental standards. These measures allowed Chinese firms to undercut Western competitors, who faced stricter regulations and higher production costs.
By the early 2000s, China had driven many competitors out of the market. The Mountain Pass mine in California, once the global leader, closed in 2002 due to economic and environmental challenges. This made China both the primary supplier and major refiner of rare earths, a position that gave it enormous pricing and strategic power.
Importantly, China secured control over the most valuable parts of the supply chain—refining and processing—where the real economic and geopolitical leverage lies.
Why China’s Strategy May Backfire
China’s decision to restrict rare earth exports is a calculated attempt to exert pressure on foreign industries and governments. But this tactic may ultimately undermine its own position.
First, the move has galvanized other nations to reduce their reliance on Chinese rare earths. The U.S., European Union, Japan, Australia, and India are all accelerating investments in their own supply chains. Australia’s Lynas Rare Earths has scaled up operations, and the U.S. has classified REEs as critical minerals, funneling funds into domestic refining.
India is also acting quickly. Reforms to the Mines and Minerals (Development and Regulation) Act are being fast-tracked, and the country expects to produce rare earth magnets domestically in small volumes by year-end. At a recent India-Central Asia Dialogue in New Delhi, several nations expressed interest in joint initiatives. India is also exploring alternative sources and technologies to reduce dependence on REEs, according to Commerce Minister Piyush Goyal.
A Catalyst for Innovation
China’s restrictions are accelerating innovation in materials science. Companies are investing in alternatives to rare earths, such as ferrite magnets and advanced electric motor designs that minimize or eliminate REE use. These developments could eventually make the global economy less dependent on rare earths, eroding China’s market dominance.
As nations begin producing their own REEs and rare earth-based products—or adopt substitutes—China risks losing its export markets. Given that much of China’s rare earth industry is geared toward exports, especially in the high-value magnet sector, this could lead to overcapacity and shrinking global relevance.
The Strategic Shift
This is more than a supply chain disruption—it’s a strategic shift. Countries now view rare earths not just as commodities but as national security assets. Governments are rolling out industrial policies, offering incentives, and forging international alliances to secure stable and diversified supplies.
In the short term, China’s dominance in refining will continue to challenge dependent sectors like electric vehicles. But over the medium to long term, the act of leveraging this dominance may prove self-defeating. The global response suggests a turning point. China’s attempt to weaponize rare earths could end up accelerating its own loss of leverage.
