China's rare earth policy

Rare earth elements (REEs) frequently feature in headlines about modern technology supply-chains and geopolitics. Although the name might suggest they are exceptionally scarce, the key point is their critical importance: they are indispensable inputs in applications ranging from high-performance magnets and electric vehicles to missiles, radar systems and wind turbines. In recent years China has used its dominant position in rare-earth mining, refining and magnet production as a strategic lever, threatening or implementing export curbs to advance its diplomatic and trade objectives. Here we will explore which rare earths are in focus, why China’s power matters, what the consequences are globally, and how other states and industries are responding.

What are the “rare earths” in question?

The term “rare earth elements” refers broadly to the 17 lanthanoid elements plus scandium and yttrium - all with higher atomic numbers than the elements typically found in everyday chemistry. They are rare. They are grouped often into “light rare earths” (LREEs) and “heavy rare earths” (HREEs) by reference to atomic weight and geochemical behaviour. Many of the “elements under control” by China are heavy or medium rare earths with specialised magnet- or laser-applications. For example, China’s April 2025 export control list covered seven elements: samarium, gadolinium, terbium, dysprosium, lutetium, scandium and yttrium. 

The particular significance of HREEs lies in their use in permanent magnets (e.g., dysprosium, terbium) and other critical functions (e.g., lasers, medical imaging). According to a detailed analysis by Yuki Kobayashi:

“Heavy rare earths are indispensable and more important in fields directly related to national security, such as laser equipment and the aerospace industry.” 

Thus although some REEs may seem arcane, they are in fact deeply embedded in militarily-relevant and industrially advanced systems.

China’s dominance in rare-earth supply chains

China’s role in rare-earth supply is not just as a major miner: she dominates the full value-chain in many respects. According to International Energy Agency (IEA) commentary:

• China accounted for around 60% of global rare-earth mining output in 2024.

  
  

• On the refining/separation stage China’s share was about 91% of global production. 

  
  

• In permanent magnet production — the processing of rare-earth alloys into magnets — China’s share is even higher: around 94% according to the same source. 

This concentration gives China a powerful position. Historically, China has used quotas (e.g. in 2010 she cut rare-earth export quotas by 40%) citing environmental or resource-exhaustion reasons. In recent years she has progressed from quotas toward broad export-licensing and end-use controls. 

One analysis puts it bluntly:

“China’s ability to shut down the heavy rare earth element supply chain demonstrates the difficulty of decoupling.” 

Thus China’s dominance is structural: both in upstream raw materials and in mid-stream processing (separation, alloying, magnet manufacture). This dual capability is what gives her the leverage.

China’s export-control policy: how it works and recent escalation

China’s current policy on rare-earth export control can be understood as a deliberate strategic instrument. She has moved from environmental or quota justifications to explicitly national-security oriented licensing regimes. For instance:

• On 4 April 2025, China’s Ministry of Commerce announced export restrictions on seven rare-earth elements and magnets. These required exporters to apply for licences.

• On 9 October 2025, China expanded the list: adding five additional rare-earth elements (holmium, erbium, thulium, europium, ytterbium) and included technologies, components and assemblies containing Chinese-sourced rare-earth materials. 

The “end-use” dimension is significant: for example, licence applications will be carefully reviewed if the exports touch on advanced semiconductors, defence users or magnets with trace Chinese material. 

In effect, China is saying: not only will we control export of raw elements, but we will control export of devices or components made with Chinese rare-earths or technology, even if physically processed abroad. This is a form of “foreign direct product” control in the minerals domain. 

The timing of these announcements is also instructive: many observers tie the escalation to diplomatic events (such as a planned meeting between Donald Trump and Xi Jinping) and to China’s desire for leverage in broader trade and technology negotiations. 

Why this matters: applications & vulnerabilities

The reason why such rare-earth controls are a major issue is that the applications are strategic:

• Permanent magnets made from rare-earth alloys (notably with neodymium, praseodymium, dysprosium, terbium) are essential in electric-vehicle motors, wind-turbine generators, industrial motors, data-centre cooling, radar systems and missiles. Because of their performance (high magnetic flux, temperature stability) alternatives are often inferior. 

  
  

• Many electronics, semiconductors, lasers, medical devices and aerospace components rely on heavy rare earths for their magnetic, optical or chemical properties. Hence control of these elements can rip through several high-technology and defence sectors. 

Because China is so dominant in processing (not merely mining), alternative sources are slow to scale. For example: even though mines exist elsewhere, the separation and refining capacities are scarce, and building magnet-manufacture ecosystems outside China takes years. As one Reuters piece noted:

“For heavy rare earths, China controls 99.8 % of global refining capacity, making alternative sources negligible.” 

Hence the global supply-chain vulnerability: parts of manufacturing can be halted if materials or magnets are blocked or delayed.

Indeed data show such effects: for example exports of rare-earth magnets from China fell by 74% year-on-year in May 2025 to just 1.2 million kg. 

The global consequences: economics, security, diplomacy

The implications of China’s rare-earth export strategies span economic, security and diplomatic domains.

Economic consequences

Short-term: manufacturing disruptions. For example, global automakers reportedly raced to source rare earths ahead of Chinese deadlines, fearing shortages of magnets used in sensors, motors and brake systems. 

Prices have been distorted: one source notes that in Europe, rare-earth prices reached up to six times those in China after export restrictions. 

Long-term: firms face higher costs, supply-chain redesign, increased inventory, and delays in product launches. For magnet-makers, export curbs also hit revenue. One report remarked: “China’s rare-earth export controls are good for Beijing, bad for business.” 

Security consequences

Given that magnets and rare-earth materials are embedded in defence systems (e.g., missiles, radars, jet engines) the control of these supply chains becomes a national-security issue. A comment by the Centre for Strategic and International Studies (CSIS) emphasises that China’s export controls represent a new kind of strategic dependency for the United States. 

From the perspective of countries reliant on China’s rare-earth exports, vulnerability may translate into strategic weakness: a supplier might delay or deny key components in a critical moment.

Diplomatic consequences

China’s rare-earth leverage forms part of her broader trade and technology diplomacy. The ability to threaten or impose export controls gives China bargaining power in negotiations with the United States, Europe, Japan and other importers. After China imposed tariffs and export controls, negotiations ensued (for example a 90-day trade truce between US and China in 2025) in part driven by the rare-earth leverage. 

Moreover for third countries the question of aligning with China or the West becomes more complex: supply-chain resilience has a geopolitical dimension.

How the world (and industry) is responding

Given the risks, various responses are underway. They fall into several categories:

Supply-chain diversification

Countries and firms are seeking to develop alternative sources of rare-earth mining, refining and magnet production outside China. But this is slow: the structural dominance of China in mid-stream processing means entrants face large capital, technological and environmental hurdles. As one analysis put it: “The US cannot find domestic substitutes, at least in the short term.” 

Recycling and substitution

Efforts to recycle rare-earth magnets from end-of-life products (e.g. electric-vehicle motors, wind turbines) are increasing but remain nascent. For example one European company recycles magnets from 400,000 cars per year, although scaling up is challenging. 

Additionally research is underway into substituting rare-earths (or reducing the quantity needed) in magnets and motors, but the performance penalty and timescales are non-trivial.

Strategic stockpiling and industrial policy

Some states are creating strategic reserves of rare-earth materials or components in order to hedge against supply shocks. Industrial policy is being used to accelerate domestic refining and magnet manufacture capabilities.

Diplomatic and trade policy responses

Importing countries are engaging in negotiations with China over export licences, trying to build alliances with other producing countries, and incorporating rare-earth concern into national-security and trade frameworks. For example, recent trade truce talks between China and the US have included rare-earth export considerations. 

Risks and open questions

Despite these responses, major structural risks remain:

• The speed of alternative supply-chain build-out is very slow compared with the speed at which China can impose disruptions.

  
  

• Because processing and magnet-manufacture capabilities are concentrated, even if raw-material mining diversifies, the “choke-points” remain. The largest vulnerability is not raw-material import but mid-stream processing. 

  
  

• China’s policy intentions are hard to predict: export restrictions can be announced abruptly and used as bargaining chips, which makes planning difficult.

  
  

• For many industries, the performance characteristics provided by rare-earth-magnets are hard to replicate with alternative technologies without cost or efficiency penalties.

Conclusion

The rare-earths that China is threatening to block or restrict — particularly the heavy/medium rare-earths and associated magnet technologies — sit at the intersection of manufacturing, defence, energy-transition and geopolitics. China’s dominance across the value chain, combined with the strategic nature of the applications, gives her potent leverage. For global industry and for national security planners, this means extraordinary supply-chain risk. Others are responding through diversification, recycling, policy intervention and strategic partnerships, but the balance of power currently favours China. The challenge for importers and manufacturing nations is to reduce dependence and build resilience — but that will take considerable time and sustained investment.

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The Elements Under Threat and Their Uses

Amongst the seventeen rare-earth elements, China’s recent export restrictions have concentrated upon a smaller group whose applications lie most directly at the intersection of advanced industry and national security. These include samarium, gadolinium, terbium, dysprosium, lutetium, scandium and yttrium, later joined by holmium, erbium, thulium, europium and ytterbium. Although obscure to the layperson, these elements perform indispensable roles within modern industrial economies.

Samarium and dysprosium are integral to the manufacture of high-temperature permanent magnets. Samarium–cobalt magnets, for instance, retain magnetic strength at temperatures exceeding 300°C, making them ideal for use in missile guidance systems, aircraft engines and precision navigation instruments exposed to extreme heat. Dysprosium is added in small quantities to neodymium-iron-boron magnets to preserve their magnetic alignment under thermal stress; it thereby enhances the durability of electric-vehicle motors, drones, and submarine propulsion systems.

Terbium, a close chemical cousin, is another heat-resistant additive to magnetic alloys, but it also performs a second crucial function in optical and display technology. Its phosphorescent compounds emit vivid green light, used in lighting, laser targeting and night-vision systems. A disruption in terbium supply could therefore impair not only clean-energy production but also the night-fighting capacity of modern militaries.

Gadolinium and yttrium have diverse but equally strategic roles. Gadolinium possesses the highest thermal-neutron-capture cross-section of any element, which makes it vital to nuclear-reactor control rods and shielding. It also underpins contrast agents used in medical MRI scans, connecting rare-earth policy to civilian healthcare. Yttrium, meanwhile, forms the backbone of high-performance ceramics and superconductors, as well as yttrium-aluminium-garnet (YAG) lasers employed in industrial cutting, communications and weapon systems.

Lutetium, one of the heaviest and rarest lanthanoids, is used in scintillating crystals that detect gamma radiation. Its medical and military importance is disproportionate to the minute quantities produced. A block on its export could disrupt the supply of medical imaging devices, radiation detectors and satellite sensors alike.

Scandium, often grouped with rare earths though technically distinct, is critical in lightweight aluminium–scandium alloys. These alloys are used in aircraft fuselages, spacecraft, and increasingly in advanced battery casings for electric vehicles. China is by far the world’s largest producer, and export restrictions here touch upon both civil aviation and the growing green-technology sector.

The additional five heavy rare earths brought under control in late 2025 — holmium, erbium, thulium, europium and ytterbium — are the finishing touches to this mosaic of strategic materials. Holmium and erbium are used in fibre-optic amplifiers and lasers essential to high-bandwidth communications and missile-guidance systems. Thulium, although exceedingly rare, is used in portable X-ray devices and military range-finders. Europium remains the classic red phosphor of colour displays and serves in anti-counterfeiting inks on banknotes and passports. Ytterbium improves the strength and fatigue resistance of steel alloys, giving it value in naval shipbuilding and heavy engineering.

The Web of Industrial Dependence

Collectively these materials are the hidden arteries of the twenty-first-century economy. Electric vehicles cannot spin their motors efficiently without dysprosium and terbium. Wind turbines rely upon neodymium-based magnets, whose heat tolerance depends upon small but essential additions of dysprosium and terbium. Smartphones, laptops and fibre-optic cables rely upon europium, holmium and erbium to transmit and display light. Medical imaging, nuclear energy, and advanced alloys each draw upon their own subset of the rare-earth family.

The defence implications are still more acute. The magnetic alloys stabilised by dysprosium and terbium appear in precision-guided munitions, radar systems and stealth aircraft. Yttrium and erbium lasers underpin targeting, communications and optical-countermeasure devices. Gadolinium and lutetium form part of nuclear-monitoring and detection technologies. Every modern fighter jet, destroyer or missile battery incorporates some quantity of these elements, and in each case China remains the dominant supplier.

The geography of dependence is therefore asymmetric. The United States, the European Union, Japan and South Korea have all sought to diversify, but their success has been limited by the concentration of refining capacity within China’s borders. Even if Australian or American mines extract the ores, the intermediate processing — the chemical separation of the lanthanoids from one another — still tends to occur in Chinese facilities. Thus an embargo on exports of separated oxides or metallic alloys, or on the magnets derived from them, would reverberate far beyond the borders of China herself.

Strategic Consequences

The consequence of China’s new export controls is to expose this industrial web as a potential point of coercion. By threatening to block dysprosium or terbium exports, Beijing indirectly pressures the automotive and renewable-energy industries of Europe and North America, which depend upon them to meet climate-transition targets. By extending the same controls to holmium and erbium, China simultaneously affects the telecommunications and semiconductor industries. By including technologies rather than raw materials alone, she broadens the ambit of control to components manufactured abroad using Chinese inputs — a form of extraterritorial influence reminiscent of American sanctions law.

For militaries, the prospect is more serious still. The United States Department of Defense has acknowledged that its supply chains for certain missile- and aircraft-grade magnets are still tied to Chinese refiners. Japan’s defence industry has struggled to secure domestic stocks of dysprosium and terbium. The United Kingdom, having closed her last rare-earth refinery decades ago, is rebuilding capacity almost from scratch. Hence the leverage that China now holds: her export controls are not merely symbolic but genuinely capable of delaying production in allied defence industries.

The rare earths that China threatens to block are not simply exotic minerals but the chemical alphabet of modern power. Each element plays a specialised and irreplaceable role — in magnets that turn rotors, in lasers that guide weapons, in screens that display colour and information, and in alloys that lighten aircraft and strengthen ships. Their supply has been quietly centralised within China, whose policy now makes that fact overt. The West’s challenge is to translate alarm into capacity: to refine, recycle and innovate at a pace that can render these threats less potent. Until then every aircraft turbine, missile guidance system and electric-vehicle motor will bear a trace of the same paradox — that the green and technological revolutions of the democratic world still depend upon a handful of elements dug from Chinese soil.