The Rare Earth Chokepoint – EE Times

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SHANGHAI. It has been six months since the last time China used its rare earth dominance to counter the threat of tariffs and technology controls imposed by the Trump administration.

At that time, it was about China accessing high end electronic design automation (EDA) tools, which the U.S. government wanted companies to stop selling to China. After the Chinese government imposed the export controls, the U.S. backed down, and allowed limited access to the software tools.

This month’s expansion of the export controls on Rare Earth Elements (REEs) marks a pivotal, yet predictable, escalation in the strategic competition between Beijing and Washington. 

These measures transform a group of 17 chemically unique metals—essential components of every modern technology, from F-35 fighter jets to the latest semiconductor etching tools—into a primary instrument of geoeconomic statecraft. 

The core issue at hand is not the geological scarcity of these elements, which are relatively abundant in the Earth’s crust, but rather the hyper-concentration of their complex processing and refining capacity within a single, strategic actor: “the People’s Republic of China.” This concentration has created a critical chokepoint, which Beijing is now demonstrably willing to leverage for political and strategic ends.

China’s state-led industrial ascendancy

To truly grasp the implications of this significant dominance, it’s essential to understand its origins. It can then highlight the necessity of encouraging collaboration among governments, academics, industries, and other stakeholders.

China controls a staggering 85-95% of global REE processing and refining, and over 90% of high-performance permanent magnet manufacturing. It includes a virtual 100% monopoly on processing heavy rare earths (HREEs) like dysprosium and terbium, which are indispensable for high-temperature applications in defense and electric vehicles. 

Decades of state-led policy built a near-monopoly on processing 17 vital minerals; the new export controls transform this dominance into an explicit instrument of geoeconomic coercion, disrupting defense, AI, and the global green transition.

China’s preeminence in the rare earth sector is not merely a consequence of resource endowment or market forces; it is the product of a deliberate, decades-long industrial strategy systematically executed by the state.

Starting in the 1980s, Beijing directed substantial state funding into REE research and development through programs such as “Program 863” and “Program 973“. Crucially, the government officially declared REEs a “protected and strategic good” in 1990, signaling their centrality to national strategy.

Throughout the 1990s and 2000s, China secured global market capture by leveraging low labor costs and, critically, lax environmental regulations. This strategy of “environmental arbitrage” allowed Chinese producers to offer REEs at prices with which Western companies, constrained by stricter environmental standards, could not compete. The pricing mechanism was directly responsible for the decline of major U.S. producers, including Molycorp in California.

China’s true strategic leverage stems not from mining, where it accounts for roughly 69% of global output, but from its near-monopoly over the complex midstream stages of the supply chain. 

By making refined materials cheap, Beijing created a “processing trap,” systematically disincentivizing Western investment in the difficult, expensive, and environmentally hazardous infrastructure required to convert raw concentrates into usable metals and magnets.

The 2025 gambit

The export control measures announced in October 2025 represent a deliberate shift from passive market dominance to active weaponization.

The centerpiece of the new rules is the 0.1% threshold: a provision requiring any company, Chinese or foreign, to obtain an export license from Beijing for products where specific Chinese-sourced REEs constitute 0.1% or more of the product’s total value. 

Industry experts warn that technology companies will find it “extremely difficult” to show that components like advanced chips fall below this threshold, creating an enormous compliance burden.

The regulations also expanded controls beyond raw materials to encompass high-value downstream products like permanent magnets, as well as the technologies and equipment used for processing and manufacturing, clearly aimed at slowing down other countries’ efforts to build independent processing capabilities. 

Furthermore, the regulations feature an Extraterritorial Application, mirroring the U.S. Foreign Direct Product Rule (FDPR) by applying to foreign-made goods that contain Chinese REE materials or produced using Chinese-owned technology.

Publicly, China’s Commerce Ministry framed the controls as necessary measures to “protect national security,” prevent “illegitimate military applications” of its resources, and ensure “stability of global industrial and supply chains”. However, the timing is widely interpreted as a calculated power play to create leverage in high-stakes trade negotiations with the Trump administration, forcing concessions such as the “full removal of tariffs and technology controls.”

Shockwaves across vital sectors

China’s decision poses a direct and tangible threat to foundational sectors of the global economy, prompting one analyst to describe the potential impact as “an economic equivalent of nuclear war”.

Semiconductors and AI

The semiconductor industry is acutely vulnerable. Rare earths are vital for powerful neodymium magnets used in precision wafer fabrication equipment, and Cerium oxide is the primary abrasive for chemical-mechanical planarization (CMP)—the polishing process essential for chip manufacturing. The case-by-case review process for sensitive sectors like advanced semiconductors and AI systems introduces profound uncertainty. 

“It’s an economic equivalent of nuclear war—an intent to destroy the American AI industry,” said Dmitri Alperovitch, co-founder of the Silverado Policy Accelerator think tank. It could cause a U.S. recession if aggressively implemented, given the importance of AI capital spending to the economy.

Defense industry

For the U.S. and its allies, this is a national security crisis. REEs are critical enablers for modern military hardware, including radar, sonar, laser guidance systems, and electric propulsion. The dependency is pervasive: each F-35 Lightning II jet requires over 400 kg (900 lbs) of rare earth materials, and a single Virginia-class Submarine requires approximately 4,200 kg (9,200 lbs) for its electric drive motors. China’s explicit policy of denying export licenses for military end-users poses a “potentially crippling threat” to Western defense supply chains, risking a “fighter jet gap” or munitions shortage.

Green transition

The global shift toward clean energy is also directly imperiled. Electric Vehicles (EVs) rely on powerful NdFeB permanent magnet motors, which require heavy rare earths like dysprosium and terbium to ensure performance at high operating temperatures. 

Direct-drive wind turbines, favored for offshore applications, also require massive quantities of these magnets. These restrictions are forcing manufacturers to contemplate costly, time-consuming design changes, such as shifting to heavier, less efficient magnet-free induction motors.

Global strategic repositioning

China’s coercion has served as a global “wake-up call,” accelerating ambitious, state-led responses across major economic blocs.

The Trump administration’s response has been swift and aggressive. Treasury Secretary Scott Bessent immediately warned that Beijing’s actions made it an “unreliable partner,” suggesting the world would need to “decouple” if China proceeded. President Trump publicly threatened to impose an additional 100% tariff on all Chinese imports in retaliation.

Strategically, the U.S. Department of Defense (DOD) has committed over $439 million to a five-year plan aimed at establishing an entirely domestic, secure supply chain by 2027. This aggressive “Mine-to-Magnet” strategy involves direct state intervention, including providing funding to U.S. miners and processors like MP Materials and Lynas USA, and securing domestic magnet manufacturing capacity. 

Additionally, Washington is coordinating internationally through the Minerals Security Partnership (MSP), a coalition of 15 countries plus the EU, designed to diversify critical mineral sourcing.

The EU, calling the controls a “critical concern” and “unjustified”, is prioritizing “strategic autonomy”. The centerpiece of its response is the Critical Raw Materials Act (CRMA), which entered into force in May 2024. 

The CRMA sets ambitious benchmarks for 2030, aiming to source at least 40% of the bloc’s annual consumption from domestic processing and mandates that no more than 65% of the supply of any single strategic material should come from a single third country. The EU is also ready to deploy its new Anti-Coercion Instrument (ACI) to impose countermeasures against countries using economic coercion.

Having been subjected to a Chinese REE embargo in 2010, Japan possesses the most mature and time-tested diversification strategy. 

Tokyo immediately expressed “deep concern” and called for a united G7 response. Japan’s government agency, JOGMEC, combines strategic overseas investments (such as early financing for Australia’s Lynas Rare Earths) with aggressive research into recycling and material substitution. 

This multi-decade effort has already successfully reduced Japan’s direct dependence on China for REEs from over 90% to below 60%.

End of globalized efficiency

The rare earths crisis confirms that the era of supply chains driven purely by cost efficiency is over for strategic materials. While Western leaders prefer the language of “de-risking”—a targeted reduction of critical dependencies—China’s aggressive posture is forcing a harder-edged assessment. 

The licensing regime, which grants Beijing unprecedented insight into the material composition and technological roadmaps of cutting-edge Western products, functions as an instrument of intelligence gathering.

The most durable long-term solution lies in replicating and eventually breaking China’s processing choke point. Industry analysts argue that by so overtly weaponizing its dominance, Beijing may ultimately backfire, destroying the trust necessary for commercial relationships and providing Western governments with the political justification to underwrite the massive, long-term investments needed to build alternative supply chains. 

However, rebuilding the complex “mine-to-magnet” infrastructure requires overcoming decades of lost expertise and navigating significant economic and environmental hurdles, a process estimated to take a decade or more.

This conflict over rare earths is a key battleground where the fault lines of a new, bifurcated global economic order—one centered on China and one built around the United States and its allies—are being drawn.

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