China's rare earths: Geopolitical leverage or a security measure?

Rejecting the comparisons of its new rare earths export regulations with the Foreign Direct Product Rule — something the US and the West have been practising for decades to exert power — China emphasises that its new export curbs on rare earth-related technologies comply with international norms for managing dual-use items.

To some experts, these new curbs, followed by US President Donald Trump's announcement of increasing tariffs for Chinese exports to the US to 155 per cent from November 1, suggest a new trade war has broken out again between the two countries. In the opinion of influential Beijing-based intellectual Cao Xin, China is the first country in the world to implement long-arm jurisdiction over rare earth export control, which has placed a uniquely Chinese constraint on the US. “But due to the close interdependence of the Chinese and US economies, the current trade war cannot be implemented and sustained.” Cao Xin added.

So, does China’s increasing export restriction on rare earth minerals and related technologies reflect its geopolitical strategy, or mirror past actions? After all, in September 2010, China had banned all rare-earth elements (REEs) exports to Japan following an escalation of diplomatic tension between the two neighbours. Or, does China sees trade issues as a threat to its further development and a possible cause of instability, leading to serious damage to the compact between the party and the people for growth without political reform?

National interests

In May-June 2021, the Harvard Business Review published an article entitled “What the West gets wrong about China”. Its author, Rana Mitter, ST Lee Chair at the Harvard Kennedy School and professor of the history and politics of modern China at Oxford, claimed that Western companies and politicians will continue to get China wrong until they realise that China, since 1949, has always emphasised the importance of Chinese history and Marxist-Leninist thought.

Mitter’s context was that many in the West continue to be amused by the version of China presented to the world in 1978 by Chinese leader Deng — “reform and opening” — which stressed the need to avoid the radical and often-violent politics of the Mao era, meaning that ideology in China no longer matters. But, Mitter argued, the reality was quite different. “At every point since 1949, the Chinese Communist Party has been central to the institutions, society, and daily experiences that shape the Chinese people.

On October 7, the US House of Representatives Committee on China released a report which called for broader bans on the export of chipmaking equipment to China. In retaliation, China’s ministry of commerce announced new export curbs on five additional rare earth elements. Trump called the move “ridiculous” and backtracked on his earlier statement that he was going to meet President Xi Jinping, at the initiative of the US president, during the October 31-November 1 meeting of the Asia Pacific Economic Cooperation summit in South Korea.

Cautioning the world about China's expanding controls on rare earth exports, Dewardric McNeal, senior policy analyst at Longview Global — just like Rana Mitter — recently observed that the regulations by themselves do not pose a challenge; the risk lies in the lack of a serious understanding about what China is doing. “The timing of the latest rare earth restrictions is no coincidence. With a Trump-Xi meeting expected in Seoul this month, China is showing it is fully capable of adapting its legal toolkit to ensure that it is willing to use law and regulation to maximum effect, both to secure short-term negotiating leverage and longer-term national interests,” McNeal emphasised in an article in CNBC published in October.

Moreover, many argue that the Chinese rare earth controls are modelled on the global restrictions the US itself introduced under the Joe Biden administration on the use of its computer chips and chip technology. As McNeal opined, The Wall Street Journal reported on October 13 that China’s firm stance to “use law and regulation” to fight the US tariffs resulted in Wall Street’s biggest fall in six months, forcing more conciliatory remarks by Trump that he did not want to “hurt” China and that Xi had simply had a “bad moment”. China responded, saying: “We will fight if we must fight. Our doors are open if the US wants to talk.”

Platitudes vs strategy

A media statement published on October 9 by China’s commerce ministry announced multiple new control measures regarding export of rare earths and rare earth-related technologies. It noted that overseas entities are required to obtain a licence for dual-use items and that new control measures will take effect immediately. In response to worldwide “hostile” reactions to the announcement, a ministry spokesperson issued a statement on October 12 justifying the new export curbs as “a legitimate action by the Chinese government to refine its export control system in accordance with laws and regulations”.

To this, the White House quickly responded in a strongly worded statement that China’s announcement was “without any notice and was imposed in an apparent effort to exert control over the entire world's technology supply chains”. The reactions in the world press, especially in the West, warned that the new restrictions were indicative of China’s “geopolitical strategy”. Contrastingly, China’s state-run media and authorities in Beijing have repeatedly emphasised that their “export controls are not export bans”. They added, “Licenses will be granted for eligible applications. China stands ready to work with the rest of the world so as to better safeguard the security and stability of global industrial and supply chains.”

Furthermore, the Chinese commerce ministry’s statement that “export controls are not export bans” has been viewed by many as China trying to tone down the rhetoric. But notably, China has so far not indicated that it will lift the controls. On the contrary, China has called the US response “irresponsible” and said the control measures were introduced in response to punitive US measures against Chinese companies since their fourth round of trade talks held in August. At a regular media briefing on October 14, China’s foreign ministry spokesperson said: “If the US insists on its own way, China will resolutely take corresponding measures to safeguard its legitimate rights and interests.” 

Industrial vitamins

A report by the Shanghai Metal Markets (SMM) — a leading metals information provider — explains why rare earths are strategically critical, saying “rare earth minerals comprise a group of 17 minerals with unique electronic and magnetic properties that make them irreplaceable in many high-technology applications. Despite their name, most rare earths aren't particularly scarce in the Earth’s crust — but economically viable concentrations are uncommon, and processing them presents significant technical challenges”.

The strategic importance of these elements — also called “industrial vitamins” — stems from their essential role in both civilian and military technologies, including electric vehicles, wind turbines, MRI machines, consumer electronics, precision-guided missiles, radar systems and jet engines.

China first used export controls on rare earths and rare earth magnets to the US as a “weapon” to retaliate against the US’ 145 per cent tariff on Chinese imports on April 2. As a result, the US was compelled to agree to a 90-day truce in the tariff war with China in May. Subsequently, the US not only agreed to extend the truce with China for a second 90-day period on August 12 but also reduced tariffs on China to 30 per cent (China has levied a 10 per cent tariff on US goods).

As clear from Table 1, China’s share in the production of critical minerals (69.2 per cent) is more than double the combined share (32.4 per cent) of all leading producers globally. More significantly, China’s dominance in the rare earth industry extends far beyond its natural resource advantages. Through decades of strategic investment and policy support, China has established control over nearly every stage of the rare earths supply chain.

Moreover, as the SMM report claims, while China produces approximately 60-70 per cent of global rare earth raw materials, its true strategic advantage lies in processing capabilities. The country controls approximately 85 per cent of the world's rare earth processing capacity, creating a bottleneck that even producers outside China often cannot bypass.

In addition, as interpreted from Table 2, China has implemented sweeping new regulations to tighten its control over REE exports, in order to preserve and further consolidate its grip on the global supply chain of these critical minerals’energy transition and defence applications. Notably, China is increasingly sensitive about rare earths and its control over supply, adding several rare earth items and magnets to its export restriction list in April in retaliation against US tariff hikes. It quietly issued its first 2025 REE mining and smelting quotas without making its usual public statement.

In the SMM report cited above, the reason for the expansion of China’s quota system to include imported raw materials is explained as its fightback against escalating US trade tensions with China. In April 2025, China added rare earth items and magnets to its export restriction list in what analysts described as retaliation for US tariff hikes. The escalating tensions demonstrate how these minerals have become pawns in broader geopolitical competition. The report stated that China has grown "increasingly sensitive about rare earths and its control over supply", according to industry analysts, particularly as technological competition with the US intensifies. The rare earth industry is increasingly viewed through a national security lens rather than an economic one.

This represents a continuation of China’s evolving approach to rare earth management:

• 1990s-2000s: Emphasis on production volume and export growth
• 2010-2015: Introduction of export quotas and consolidation of the domestic industry
• 2015-2020: Focus on environmental regulations and industry upgrading
• 2020-present: Strategic integration of rare earths into geopolitical and technological competition

Total dominance

China implemented export controls on rare earth raw materials in April, slowing export approvals. Its ministry of commerce recently issued a number of announcements (Nos 55, 56, 57, 58, 61 and 62), further tightening export controls on rare earth-related raw materials, equipment, products, technology and cooperation. Data released by China Customs on October 13 showed that rare earth exports fell 31 per cent month-on-month in September. Lu Xiaomeng, director of geopolitics at Eurasia Group, a US political risk consulting firm, believes the world is highly dependent on China for mining and refining rare earth elements. “Any disruption to the supply chain could trigger a global chain reaction,” Lu cautioned.

The latest additional curbs were announced by China’s ministry of commerce on October 9 — the Ministry’s General Administration of Customs issued six announcements. Chang Siying, reporting for the BBC Chinese a week later, described China’s move as the result of the ongoing trade and technology battle with the US, which had overshadowed a potential meeting between the two presidents during the Asia-Pacific Economic Cooperation summit. “While China's latest ‘rare earth card’ is broadly applicable, the devil is in the details. The new regulations leave room for interpretation, making them a potential bargaining chip in the next round of Sino-US negotiations,” Chang wrote.

As shown in Table 3, according to the International Energy Agency, China accounted for about 92 per cent of global refined rare earth production in 2023. While many argue the West has gifted away rare earth mining and production technologies to China in the past few decades, the truth is that, in addition to being costly, the mining and refining of rare earths also cause serious environmental pollution. The following three factors are generally cited to explain why the US and countries in the West knowingly did not engage in mining and producing rare earths for all these decades:

• The mining and refining of rare earths are extremely costly
• The mining and refining of rare earths cause serious damage to the environment
• All rare earth resources contain radioactive elements, which is why many countries in the West, including the US, are reluctant to produce them

Gavin Harper, a critical materials researcher at the University of Birmingham, said: “Since the late 20th century, China has prioritised the development of rare earth mining and refining, often with lower environmental standards and labour costs than other countries.” This is, according to Harper, how China succeeded in undercutting global competitors on price and gradually established a near-monopoly across the entire value chain, from mining and refining to manufacturing final products such as magnets.

India’s challenge

Renewed high-level interactions between India and China last August sparked optimism in Indian strategic circles over a potential easing of export restrictions on rare earth minerals. But it has been more than two months since foreign minister Wang Yi reportedly promised his counterpart S. Jaishankar that his government would lift curbs on rare earths mineral export to India. There is as yet no sign of an end to the drought in Chinese supplies of rare earths to India. In addition, no one in China — neither its foreign ministry nor the state-run media — has acknowledged the Chinese foreign minister making such assurances.

Instead, China has intensified its economic war on a global scale, leveraging rare earths as a key tool in this strategy. The new export policy specifically targets the defence sector, requiring India to secure a licence for imports and to certify that any rare earths obtained for civilian use will not be redirected to defence industries or third countries. This move presents a significant challenge not only for the US and its allies but also for India. Let’s realistically recall here that despite the so-called “reset” in India-China relations recently, the overall thinking in China remains unchanged that the India-US defence “partnership” is continuing to move forward.

Besides, unlike China, which is on stronger ground for using its rare earth resources as a bargaining chip with US companies, India finds itself in a precarious position, lacking any substantial offerings to negotiate in exchange for vital minerals or magnets. This underscores the complexities of international trade dynamics and the strategic importance of REEs in global economic relations, an Indian strategic affairs analyst said. Moreover, this realisation perhaps explains why India is considering easing trade curbs on Chinese imports amid rising industrial dependence.

To conclude, many times in the past, countries dealing with China have failed to correctly read the messages emanating from China. The latest example is when China’s foreign ministry spokesperson blasted the US over an additional 100 per cent tariff on Chinese goods, at a press briefing in Beijing on October 12. “The relevant US statement is a typical example of double standards. China's position on tariff wars has been consistent. We do not want to fight, but we are not afraid to fight,” the spokesperson said. Anticipating China would come around to sign an agreement easing curbs on rare earths export to the US, Trump was “surprised” when Beijing introduced a new set of controls, further intensifying the trade fight.

A similar phraseology was used by China in May 2019 when their state media warned the US, saying, “don’t say we didn’t warn you” about the gravity with which the intensifying trade rivalry with the US was viewed in the Chinese capital. In the opinion of a foreign affairs analyst, this was not a throw-away line, though on the surface it seemed quite mild. That is, until one realised the significance of it. The six-word phrase is associated with China's going to war with India in 1962 and Vietnam in 1979. It could not have been used without the highest official clearance. Clearly, to China, the trade dispute is nothing less than a danger.

It is in the above context that India should be correctly decoding what a visiting Chinese economist recently said: “I think China would be happy if India joined the regional comprehensive economic partnership. We could have more integration in trade, and the bilateral trade will increase.” Greater collaboration in trade and investment could benefit both countries, he added. Maybe, the visiting economist, Zhang Liqing, director of the Centre for International Finance Studies — an influential economic research firm in Beijing — was conveying an important message to India.