It is a high-stakes confrontation. After China imposed its export controls, President Donald Trump threatened to impose a 100% extra tariff, sparking a market rout. Washington backtracked, signaling readiness to negotiate, and the markets calmed, at least temporarily.
But the root problem remains: China dominates the supply of 17 key minerals, which have unique magnetic, optical, and electronic properties essential for producing high-powered magnets, batteries, wind turbines, semiconductors, lasers, optical devices, and sensitive military systems. According to recent estimates, China retains about 44 million tons of rare earth oxides equivalent, more than Brazil (21 million), India (6.9 million), or Australia (5.7 million) combined.
Although the name invites one to think of something scarce, critical minerals are not so scarce: many are present in moderate concentrations, but they almost never appear in pure or concentrated veins. They are often mixed with other minerals that make them difficult to extract and separate.
We are not finding more rare earth deposits simply because we did not search for them hard enough. Now that their strategic importance is well known, that is changing. New deposits are periodically announced in other countries. In 2024, China extracted about 270,000 tons of rare earth oxide equivalent, while the US produced only about 45,000 tons.
What’s most problematic is China’s control of almost 90% of global processing and refining capacity, stages where mineral oxides are converted into useful pure substances.
How did China attain this dominance? The answer is not only geological, but strategic and political, the result of a long-term strategy. Beijing began investing in the entire rare earth supply chain back in the 1980s: mining, chemical separation, magnet manufacturing, recycling, and alloy technology. That vertical integration lowered costs, putting it far ahead of its competitors. China also applied regulations, subsidies, and industrial protection to boost Chinese national champions.
The Chinese toolbox also leverages production quotas, permits, and internal controls to regulate domestic supply and exports — giving it the power to open or close the spigot on political grounds. Its new curbs require foreign companies to get special approval to export items that contain even small traces of rare earth elements sourced from China. They extend control over the use of elements critical for key production of semiconductors and high-tech military products.
What is the likely impact?
First, supply chains will be disrupted for strategic sectors: defense, aerospace, electric car manufacturers, wind turbine producers, and chip companies. Companies that rely on Chinese suppliers may encounter delays, price increases, or red tape. The new regulations require licenses for the export of certain oxides and magnets, which introduces a deliberate capacity for “slowing down”: not a total ban, but a regulatory brake.
Second, the US and Europe will race to diversify supply: countries and companies will try to find alternative mines, non-Chinese refining plants, and technologies that reduce dependence. Promising signs are visible. European companies are planning rare-earth-free magnets and investing in recycling critical metals. Europe’s new Critical Raw Materials Act encourages the development of local extraction and processing. In the United Kingdom, for example, the Pensana Salt End plant aims to cover 5% of the world’s demand for neodymium and praseodymium.
Admittedly, alternatives are painfully limited in the short term, particularly in the US. At the California Mountain Pass mine, advanced chemical separation and magnet production are not operational. The Defense Department has committed funds to build a “mine-to-magnet” chain by 2027, but that goal is far from assured, especially for heavy rare earths such as dysprosium and terbium, where China has a near-total monopoly.
Until new Western production comes online, China will use its leverage over critical supply bottlenecks to secure concessions on technology, market access, or tariffs. It will incentivize technology-intensive industries to settle in China to ensure access, which will strengthen its leadership in high-tech value chains. By “weaponizing” its stranglehold over minerals, China blurs the boundary between civilian and military industry, complicating any international agreement.
Long-term, the West must respond. The US, Europe, Canada, Australia, and Japan should cooperate on joint projects to mitigate this dependency. China’s move should spark disruptive innovations. European carmakers BMW and Renault are reportedly exploring engines that do not use rare earths. Mining companies are working to develop efficient separation processes or the use of substitute materials
If any of these technologies achieve commercial viability, they could erode China’s advantage. In the meantime, though, China’s grip over rare earths gives it a strong negotiating weapon.
Enrique Dans is a non-resident senior fellow in the Tech Policy Program at the Center for European Policy Analysis (CEPA). He is a Professor of Innovation at IE University in Madrid.
Bandwidth is CEPA’s online journal dedicated to advancing transatlantic cooperation on tech policy. All opinions expressed on Bandwidth are those of the author alone and may not represent those of the institutions they represent or the Center for European Policy Analysis. CEPA maintains a strict intellectual independence policy across all its projects and publications.
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