English
China's 2025–2026 export controls on rare earths and critical minerals have triggered sixfold price spikes outside China while cutting licensing approval rates for European firms below 25%, according to a multi-institutional analysis drawing data from over 50 institutions including the European Parliament Research Service, OECD, and CSIS. With China controlling roughly 90% of global rare earth processing, Beijing is weaponizing processing dominance—not outright scarcity—as a reversible geopolitical tool to extract concessions and discourage Western investment in alternative supply chains. Over 80% of European companies remain dependent on Chinese critical minerals for defense, EVs, and renewables, and rebuilding independent alternatives could require 20–30 years, narrowing the window for Western nations to act decisively to just 12–18 months.
How China's Export Controls Work
China's Ministry of Commerce (MOFCOM) Notice No. 61 of 2025 formalized a new licensing regime requiring exporters to obtain approval for rare earth shipments. The controls apply not only to raw materials but also to products containing trace amounts of Chinese-origin rare earths, effectively extending Beijing's reach extraterritorially. Approval rates for European firms have fallen below 25% in some sectors, while domestic Chinese companies continue to receive preferential access. This creates a two-tier market where Western manufacturers face both scarcity and soaring costs.
The rare earth processing dominance is the key lever. While China mines roughly 70% of global rare earths, its true chokehold lies downstream: it controls ~90% of global refining and ~94% of permanent magnet production, according to a 2026 Griffith Asia Institute study. These vertically integrated supply chains are reinforced by extraterritorial export controls that require licenses for products containing even trace amounts of Chinese-origin rare earths. The study warns that Western diversification efforts focused solely on new mines will fail without parallel investment in separation, refining, and magnet manufacturing.
Price Spikes and Supply Chain Disruption
The impact has been immediate and severe. Prices for key rare earth elements such as neodymium and praseodymium—essential for EV motors and wind turbines—have surged sixfold since the controls took effect. European automakers and defense contractors report production delays and cost overruns. The Pentagon has identified critical minerals as a top national security priority, while the EU's Critical Raw Materials Act aims to reduce dependency, but financing volumes remain insufficient.
According to the ODI analysis, China's 15th Five-Year Plan will further cement its dominance, with projections that Beijing will supply over 60% of refined lithium and cobalt, and 80% of battery-grade graphite and rare earths by 2035. The EU Critical Raw Materials Act has selected 60 Strategic Projects, but scaling investment remains challenging amid pricing and demand signal uncertainties.
Geopolitical Weaponization: A Reversible Tool
Unlike outright resource nationalism, China's approach is calibrated for maximum geopolitical leverage. The controls are temporary and reversible, allowing Beijing to tighten or loosen the screws in response to Western policy moves. This creates a strategic dilemma: Western nations must either accept managed dependence, pursue costly independence, or adopt a hybrid model. Each path carries significant risks and costs.
Managed dependence risks continued vulnerability to Chinese coercion. Costly independence—building fully independent supply chains—could take 20–30 years and require hundreds of billions in investment. A hybrid model, combining strategic stockpiles, allied cooperation, and innovation in substitutes, may offer the most viable path but demands immediate and coordinated action.
Western Countermeasures: US-EU Action Plan
In response, the United States and the European Union announced a joint Action Plan for Critical Minerals Supply Chains in April 2026, aiming to coordinate trade policies, share R&D, and align investment frameworks. The plan, reported by Reuters, seeks to create shared standards and reduce dependence on Chinese-controlled resources. The Pentagon has allocated $2 billion for the National Defense Stockpile, while the EU has accelerated permitting for strategic mining projects.
However, the Council on Foreign Relations argues that the US cannot out-mine or out-process China and should instead pursue an innovation-centered strategy to 'leapfrog' China's dominance. Recommendations include developing rare-earth-free magnets, scaling waste-based recovery from mine tailings and e-waste, and closing the financing gap for frontier mineral technologies. The US-EU critical minerals deal represents a significant step, but implementation remains a challenge.
Expert Perspectives
Heidi Crebo-Rediker, former US State Department chief economist and co-author of the CFR report, stated: 'The United States cannot out-mine or out-process China. We need to leapfrog by investing in innovation—substitute materials, recycling, and advanced manufacturing—that can break the dependency cycle faster than traditional mining ever could.'
A European Commission official, speaking on condition of anonymity, told reporters: 'The approval rate for our companies has dropped to levels that are simply unsustainable. We are exploring all options, including WTO dispute mechanisms, but the reality is that China holds the cards in the short term.'
FAQ
What are rare earth elements and why are they critical?
Rare earth elements (REEs) are 17 metals essential for high-tech applications including EV motors, wind turbines, defense systems, and electronics. Despite their name, they are relatively abundant but difficult and costly to process, which is why China's control over refining is so strategically important.
How much of global rare earth processing does China control?
China controls approximately 90% of global rare earth processing and 94% of permanent magnet production, according to the 2026 Griffith Asia Institute study. This downstream dominance is the true source of Beijing's leverage.
What triggered China's 2025–2026 export controls?
The controls were escalated in response to the US-China trade war under President Trump, but they also reflect a long-standing Chinese strategy to use critical minerals as a geopolitical tool. MOFCOM Notice No. 61 of 2025 formalized the new licensing regime.
How long would it take the West to build independent supply chains?
Rebuilding independent rare earth supply chains could take 20–30 years, according to industry analysts. The window for decisive action is narrowing to 12–18 months before Chinese dominance becomes even more entrenched.
What are the main Western countermeasures?
The US and EU have announced a joint Action Plan for Critical Minerals, including coordinated trade policies, R&D investment, and stockpiling. The US has allocated $2 billion for the National Defense Stockpile, while the EU's Critical Raw Materials Act aims to boost domestic production and recycling.
Conclusion: A Narrowing Window
China's rare earth export controls represent a masterclass in strategic leverage—using processing dominance, not outright scarcity, as a reversible tool of statecraft. With Western nations facing a 12–18 month window to act decisively, the choices made today will determine the shape of global supply chains for decades. The Pentagon rare earth strategy and EU action plan are steps in the right direction, but without rapid, coordinated investment in innovation and alternative supply chains, the West risks permanent dependency on Beijing's terms.
Sources
- Rare Earth Exchanges - China's 2026 Export Controls
- CSET - MOFCOM Notice No. 61 of 2025
- EPRS - China's Rare-Earth Export Restrictions
- ODI - Critical Minerals Geopolitics in 2026
- CFR - Leapfrogging China's Critical Minerals Dominance
- Reuters - US-EU Critical Minerals Action Plan
- Rare Earth Exchanges - Griffith Asia Institute Study
Follow Discussion