Beijing recently tightened export controls on some critical rare earth elements, ratcheting up its tariff standoff with Washington. By monopolizing more than 90 percent of global rare earth processing, China has long held these 17 elements as a strategic chokepoint.
Analysts say Beijing’s new export licensing rules—ostensibly applying to all countries, but aimed at the United States—are likely a tactic to pressure Washington into trade concessions.
“This is a classic weaponized negotiation,” U.S.-based economist Davy J. Wong told The Epoch Times. It is designed to make Congress and industry lobby for relief from U.S. tariffs, export controls, and outbound investment restrictions, he said.
The tactic is risky and could backfire in the medium to long term, he said.
According to Wong, if Beijing’s export controls remain in place, they could force Western decoupling, strain domestic industries because of oversupply, and erode the near monopoly in rare earth processing that it spent decades building.
Announced by the Chinese Communist Party (CCP) on April 4, the rules cover magnets and seven rare earth elements—samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium—used in technologies related to critical sectors such as defense and energy.
Shipments are on hold while exporters apply for special licenses—a review that can take weeks or months, heightening the risk of global supply chain disruption.
Beijing could approve few, if any, licenses for U.S. buyers, while “countries that are willing to continue fostering stronger collaboration with China are not impacted by these restrictions,” Baskaran said.
She noted that 15 U.S. defense and aerospace companies have been added to Beijing’s ban list. This means that even if permits are granted to export rare earths, these companies will still be unable to do business with Chinese companies that manufacture critical technology.
Wong said the Chinese regime’s immediate target is the U.S. defense supply chain—particularly sixth-generation fighters such as the F-47—and other high-tech weapons that depend on rare earth magnets.
According to Baskaran, an F-35 fighter jet contains approximately 900 pounds of rare earth metals, an Arleigh Burke-class destroyer contains about 5,200 pounds, and a Virginia-class submarine contains about 9,200 pounds.
For Beijing, it may be “short-term gain, long-term bleeding,” Wong said, predicting that Chinese producers will soon face price swings, unsellable stockpiles, and mounting financial troubles.
For three decades, the CCP has kept prices artificially low through state-directed overproduction, heavy subsidies, and market interventions that have driven many international competitors out of business.
Wong said that by injecting uncertainty rather than imposing an outright ban, the Chinese regime is trying to push U.S. manufacturers to plead for a trade bargain.
Beijing is carrying out a gambit, hoping that fear alone will achieve its objectives. However, the risk is that the world may ultimately settle for an alternative global supply chain, Wong said.
The Bottleneck, Alternatives, and Challenges
“[Rare earth minerals] are not actually rare,” Baskaran said on the podcast. “They’re found everywhere, but they tend to be found in very small quantities.”Rare earth production typically consists of three main stages: mining the ore; chemically processing it; and manufacturing end products, such as magnets and alloys.
China currently accounts for about 60 percent of global rare earth output and processes about 90 percent of the world’s supply, making it a “critical vulnerability” for the United States, according to Baskaran.
The CCP’s tightest grip is no longer on mining ores—it is on the processing and manufacturing stages that follow, which turn ore into usable material. The processing step involves methods such as smelting to isolate the metal from the ore. The manufacturing step involves methods such as alloying, shaping, and heat treatment.
The finished products include high-purity metals, advanced alloys, and permanent magnets that power electric vehicles (EVs), wind turbines, smartphones, and guided missiles.
Even if alternative ore sources are explored, the world would still face a shortage of refineries and sintering plants without China.
The United States, Australia, Canada, and the European Union (EU) have begun to finance the “missing middle”—the gap in rare earth processing and manufacturing—aiming to establish a basic supply web within five to 10 years, Wong said.
Other nations, including Brazil and Vietnam, hold significant reserves and are exploring ways to increase production.
Environmental hurdles remain a challenge. Rare earth ores carry varying amounts of thorium and uranium, and separating them produces toxic tailings and wastewater. Stricter regulations in the United States and Europe will increase costs unless more effective leaching and on-site heavy metal recovery techniques are adopted.
A Playbook the World Has Seen Before
The CCP deployed a similar tactic in 2010, halting rare earth exports to Japan for seven weeks during a territorial dispute.Tokyo’s response was swift: It struck major supply deals with Australia’s mining giant Lynas, poured grants into non-Chinese deposits in India and Vietnam, and jump-started rare earth recycling. The United States followed by reopening California’s Mountain Pass Rare Earth Mine, stockpiling critical rare earths, and investing in research on rare earth substitutes.
Wong said the incident also signaled to the world that rare earths had become a geopolitical weapon and any threat of supply disruption could lead to a broader diplomatic fallout.
South Korea, the EU, and members of the Association of Southeast Asian Nations are already crafting de-risking plans to reduce their dependence on Chinese rare earths, he noted.
Each time Beijing pulls the lever, its credibility as a reliable supplier diminishes, he said.
Investors from the public and private sectors are already backing Australia’s Lynas, the United States’ MP Materials, and a string of Canadian and Scandinavian projects that were once considered marginal.
Companies that cannot export rare earths reliably within China will relocate or diversify.
On the other hand, rare earth substitutes and recycling are also options.
Tesla, for instance, has cut rare earth use for its Model 3’s powertrain by 25 percent since 2017.
The substitutes are not perfect, Wong said, but “the trend is clear and investment is surging.”
Domestically, Beijing would have to cushion the blow, he noted.
It may buy up stockpiles, funnel subsidies to keep mines open, or push for another round of consolidation, allowing big state-owned conglomerates to absorb smaller firms, he said. Additionally, local governments could offer tax relief and cheap loans, but they cannot conjure foreign demand, he said.
In the short run, Chinese exporters may enjoy wider margins as prices jump, Wong said. Over the medium term, diversified mines, new refineries, and recycling will chip away at Beijing’s dominance, he noted.
Some foreign magnet makers may even set up plants in China to secure feedstock, but geopolitical risks and U.S. outbound investment rules will likely cap that trend, Wong said.
According to him, the most likely outcome is a reshuffled market in which China remains a major player but no longer calls all the shots.
If that happens, Beijing will have traded a moment of negotiating leverage for a permanent dent in its industrial dominance, he said, and such a move would only hasten global efforts to reduce reliance on these materials.
