China Weaponizing Rare Earth Metals in Trade War Could Backfire

Chinese Trade War Strategy on Rare Earth Elements Risky in Long-Term

China recently added seven rare-earth elements to its export control list amid rising geopolitical trade tensions, increasing its leverage because it dominates global refining and processing capacity. Although these metals are relatively abundant in the crust, they are rarely concentrated, require complex separation, and are essential for many civilian and military technologies — from smartphones and MRI contrast agents to magnets in EVs, wind turbines, aircraft and nuclear reactors. The U.S. lacks significant processing capacity for many targeted elements, increasing strategic vulnerability.

Key points

• China controls the vast majority of rare-earth refining and is using export controls as a geopolitical tool; Washington had earlier imposed punitive tariffs.
• Seven metals newly restricted: terbium, yttrium, dysprosium, gadolinium, lutetium, samarium, and scandium — each critical for specific high-tech, medical, energy and defense uses.
• S. processing capacity is limited or absent for many of these elements (e.g., yttrium, scandium), making the U.S. dependent on Chinese exports; Project Blue and USGS data highlight this dependence.
• Neodymium and praseodymium — important for permanent magnets (EVs, wind turbines) — were not restricted; U.S. production exists but remains tiny compared with China (1,130 tons vs. 58,300 tons).
• Strategic impact: control over these niche metals strengthens China’s negotiating leverage and could disrupt supply chains for both civilian industries and military applications.

The Western Response

China briefly choked rare-earth exports, creating panic and prompting political pressure, but the move likely backfired: export controls accelerated efforts by countries and companies to diversify supply, invest in mining and recycling, develop alternatives and stockpile materials. Over time these responses will weaken China’s leverage even though diversification and capacity-building will take years.

Key points

• China supplied ~90% of refined rare earths and briefly restricted exports, disrupting industries and raising geopolitical alarm.
• The export controls are part of a broader, sophisticated licensing system Beijing is using to wield economic leverage over global supply chains.
• China’s dominance rests more on scale and low-cost, polluting refining than unique geology or technology, so alternatives and new suppliers are feasible.
• Past shocks (2010) and recent actions spurred Japan, the US (Pentagon stake in MP Materials), Apple and others to invest in mines, stockpiles, recycling and alternatives; dozens of projects are expected by 2030.
• Diversification and innovation—new magnet designs, rare-earth-free motors, recycling—will erode China’s leverage, though building capacity and speeding approvals will take years.

Short-term impacts

– Market disruption and price spikes: The controls caused immediate volatility in prices for neodymium, praseodymium, dysprosium and terbium—key inputs for permanent magnets used in EV motors, wind turbines and defense systems. Spot markets tightened as buyers raced to secure supply or tap inventories.

– Supply-chain scrambling: Automakers, defense contractors and electronics firms accelerated procurement of Chinese material where possible, while also reallocating production, qualifying alternative suppliers and prolonging component lifetimes to stretch inventories.

– Political fallout: Export curbs amplified calls in the West for strategic industrial policy—tariffs, subsidies, stockpiles and diplomatic efforts to shore up non-Chinese supply chains. Domestic politics in exporting countries also intensified as firms lobbied for relief.

– Short-lived bargaining power: China gained immediate leverage, but the economic and reputational costs—accelerated diversification, investment incentives abroad and expanded recycling—started to offset that edge within months.

 

Medium-term developments (1–5 years)

– New mining projects come online: Higher prices and guaranteed offtake deals make previously marginal deposits economically viable. Australia, the US, Canada, Greenland and parts of Africa are seeing renewed exploration and permitting activity, though lead times remain multi-year.

– Expansion of refining and processing outside China: The most significant bottleneck is refining and magnet production. Western governments are subsidizing new facilities and partnering with private firms to build domestic or allied-capital processing capacity. Expect several mid-scale refineries and magnet plants to be operational within this window.

– Industrial adaptation: OEMs redesign products to use fewer or lower-grade REEs, increase mechanical efficiency to reduce magnet size, or substitute alternative motor technologies (e.g., induction motors in some EV segments). These design shifts take time but are increasingly codified in supplier contracts and procurement specs.

– Recycling scale-up: Urban mining—recovering REEs from end-of-life electronics, permanent magnets and industrial scrap—begins to contribute meaningfully. While recycled content won’t displace primary production quickly, it becomes a growing, lower-carbon supply stream attractive for high-value, security-sensitive applications.

– Strategic stockpiles and long-term contracts: Governments build or expand strategic reserves for defense-critical materials; firms negotiate multi-year contracts with diversified suppliers to de-risk procurement.

Long-term trajectory (5–15 years)

– Substantially reduced concentration risk: If permitting, investment and technology trends persist, the share of refined non-Chinese supply could rise markedly by 2030–2035. China will likely retain an advantage in cost and remaining capacity, but global markets will be less hostage to a single supplier.

– Technological substitution and efficiency gains: Continued R&D into rare-earth-free magnets, high-temperature superconductors, and motor architectures may reduce demand growth for certain REEs, especially in applications where cost and geopolitics drive adoption of alternatives.

– Persistent chokepoints: Some parts of the value chain—certain specialty alloys, deep-processing chemicals, or scale economies in large refineries—may remain concentrated, preserving pockets of leverage for incumbents. Environmental regulation will also shape where refining returns are feasible, potentially re-concentrating dirty processes in jurisdictions with laxer standards unless cleaner technologies proliferate.

– Geopolitical realignments: Countries will form supply-chain partnerships and industrial alliances built around secure access to critical minerals. These alignments will reflect not only geology and investment but also political trust, export control reciprocity, and shared environmental standards.