For decades, China’s dominance in rare earth elements was discussed primarily as a geological and economic fact. China holds roughly 60% of global proven reserves and, more critically, produces over 60% of the world’s mined rare earths while processing an estimated 85-90% of global supply through its refining infrastructure. That dominance was treated by many foreign companies and governments as background noise. The export controls China has deployed since 2023 have turned that background noise into a siren.
Understanding how these controls work, which industries they affect, and what the bilateral trade landscape now looks like is no longer optional for companies operating in electronics, defense, clean energy, or advanced manufacturing. It is a business survival requirement.
What Are Rare Earths, and Why Does China Control Them?
The 17 rare earth elements — including neodymium, dysprosium, terbium, cerium, lanthanum, and yttrium — are not rare in the geological sense. They are found across the globe. What makes them “rare” is the difficulty and cost of extracting and refining them to industrial purity. The process is energy-intensive, chemically complex, and environmentally damaging enough that most Western nations stopped domestic production decades ago, leaving the field to China.
China’s consolidation of the rare earth industry began in earnest in the 1980s and 1990s under policies championed by Deng Xiaoping, who famously noted that “the Middle East has oil, China has rare earths.” By the 2010s, six state-owned enterprises — led by China Northern Rare Earth Group, China Minmetals Rare Earth, and China Southern Rare Earth Group — controlled the majority of Chinese mining and processing capacity. The Ministry of Industry and Information Technology (MIIT) oversees production quotas; the Ministry of Commerce manages export licensing.
These are not shadow operations. They are administered by the world’s second-largest economy’s central government, with clear statutory authority under Chinese law.
The 2023-2025 Export Control Escalation
The current phase of rare earth export controls represents a deliberate escalation, not an accident of policy. In July 2023, China’s Ministry of Commerce announced export controls on gallium and germanium — two critical materials used in semiconductors, solar panels, and night-vision equipment. Within months, the scope expanded. In October 2023, graphite was added. In late 2024, antimony and certain superalloy materials followed. By mid-2025, China had extended restrictions on heavy rare earth processing technologies and introduced new licensing requirements for dysprosium and terbium exports — elements essential to permanent magnets used in EV motors, wind turbines, and military guidance systems.
Each announcement triggered immediate market responses. Gallium prices spiked more than 80% within weeks of the July 2023 announcement. Germanium prices rose sharply in European and Asian spot markets. For corporate procurement teams, the message was unambiguous: China was willing to use material supply as a policy instrument.
The stated rationale from Beijing has been national security, environmental protection, and ensuring domestic supply for China’s own clean energy buildout. None of these justifications are implausible. China’s EV sector — dominated by CATL, BYD, and CALB — consumes vast quantities of rare earth magnets. China’s own industrial policy requires securing those inputs before exporting them.
Which Industries Are Most Exposed
Defense and Aerospace
The US Department of Defense has identified rare earths as a critical vulnerability in its defense industrial base. Neodymium-iron-boron (NdFeB) permanent magnets — which require neodymium and dysprosium — are used in precision-guided munitions, radar systems, submarine sonar equipment, and F-35 aircraft actuators. The US produced virtually no separated heavy rare earth metals domestically as of 2023. Processing capacity at MP Materials’ Mountain Pass facility in California covers light rare earths, primarily cerium and lanthanum, but heavy rare earth separation remains almost entirely China-dependent.
The Department of Defense has invested in diversification through the Defense Production Act, funding projects at companies like Energy Fuels and NioCorp Developments. But building a competitive refining chain from scratch takes years and hundreds of millions of dollars in capital expenditure.
Electric Vehicles and Clean Energy
NdFeB magnets are the enabling technology in the synchronous motors used in most EVs and in direct-drive wind turbines. A single EV motor may use 1-2 kilograms of rare earth magnetic material. A single offshore wind turbine can require up to 600 kilograms. Companies including Tesla, Volkswagen, and Siemens Gamesa have been working on magnet-free motor designs, but these carry performance tradeoffs that limit their competitiveness at scale. The broader pattern of China’s control over EV supply chain inputs compounds this dependency.
Semiconductors and Electronics
Gallium is critical for gallium arsenide (GaAs) and gallium nitride (GaN) semiconductors used in 5G base stations, radar, and power electronics. Germanium is used in fiber optic cables and infrared optics. China produces approximately 80% of global gallium and 60% of global germanium. Companies like MACOM, Wolfspeed, and II-VI (now Coherent) have begun sourcing from alternative suppliers in Canada, Germany, and Japan, but substitution at industrial scale takes two to three years under optimistic assumptions.
China’s semiconductor ambitions add a strategic layer: while restricting gallium and germanium exports, Chinese domestic producers are accelerating their own consumption of these inputs for next-generation chip manufacturing.
The Legal Architecture Behind the Controls
China’s export control framework is governed by three primary statutes: the Export Control Law (effective December 2020), the Foreign Trade Law, and regulations issued under the Unreliable Entity List mechanism. The Ministry of Commerce (MOFCOM) and the General Administration of Customs jointly administer export licensing. Companies seeking to export controlled materials must apply for licenses from MOFCOM, demonstrating end-use and end-user information. Licenses can be denied, restricted, or subjected to conditions — and there is no binding appeals mechanism equivalent to WTO dispute panels for these individual licensing decisions.
According to China’s Ministry of Commerce official guidance, controlled items include not just raw materials but related processing technologies, equipment, and in some cases technical assistance. This means foreign companies cannot simply source raw ore from a third country and then send it to China for processing — technology transfer around the controls is itself potentially restricted.
The US government has responded through multiple channels. The US Department of Commerce’s Bureau of Industry and Security has expanded export controls on semiconductor manufacturing equipment to China while simultaneously funding domestic rare earth processing capacity through the CHIPS and Science Act and the Inflation Reduction Act’s critical minerals provisions. The US-EU Trade and Technology Council has a dedicated critical minerals track. The Minerals Security Partnership, which includes the US, EU, Japan, South Korea, Australia, Canada, and the UK, aims to coordinate Western investment in non-Chinese mining and processing projects.
What China’s Policy Is Actually Trying to Achieve
Reading Beijing’s policy trajectory, the export controls are not simply retaliatory measures, though the timing of escalations (coinciding with US chip export restrictions) leaves little doubt about their strategic dimension. China’s medium-term goal appears to be using material leverage to encourage foreign companies to move manufacturing and processing investment into China rather than away from it.
The logic is consistent with China’s broader industrial policy: rather than simply exporting raw materials, capture higher-value processing and manufacturing stages. If European wind turbine makers want assured rare earth magnet supply, they are implicitly encouraged to consider manufacturing their magnets in China. If South Korean battery companies want dysprosium, they may find it easier to operate joint ventures within China’s rare earth processing zones.
This creates a genuine bilateral tension. Western governments want to diversify away from Chinese rare earth processing. Chinese policy incentivizes dependence. Companies caught in the middle face a genuine strategic choice between supply security and cost efficiency.
Practical Guidance for Businesses Operating in Affected Sectors
For companies sourcing or using rare earth materials, the following steps represent current best practice rather than theoretical risk management:
Conduct a full rare earth audit of your bill of materials. Many procurement teams do not know exactly how far upstream their materials originate. A tier-1 supplier may use a tier-2 supplier who sources NdFeB magnets from a Chinese processor. Visibility into that chain is the prerequisite for all other actions.
Engage MOFCOM licensing processes proactively. If you currently import gallium, germanium, or heavy rare earth compounds from China, ensure your end-use documentation is current and accurate. Licenses that were previously routine may now face delays or enhanced scrutiny. Build additional lead time into procurement cycles — six months minimum buffer where previously two months may have sufficed.
Map alternative sources but be realistic about timelines. MP Materials, Lynas Rare Earths (Australia), and Neo Performance Materials (Canada) are the most developed Western suppliers for specific rare earth products. Australia’s Lynas is the only significant non-Chinese producer of separated heavy rare earths at commercial scale. Capacity is growing but constrained.
Evaluate magnet recycling and substitution. Urban mining — recovering rare earths from end-of-life electronics and motors — is commercially viable at scale. Companies including Cyclic Materials (Canada) and REEtec (Norway) are building commercial recycling capacity. The chemistry and materials industry’s pivot toward circularity makes this more viable each year.
Engage government diversification programs. The US Department of Energy’s Loan Programs Office and the Defense Production Act Title III program both offer financing for critical mineral projects. The EU Critical Raw Materials Act, passed in 2024, sets benchmarks for domestic processing capacity and creates incentive structures for European investment in alternative supply chains.
The Bilateral Opportunity Within the Challenge
It would be a mistake to view China’s rare earth export controls purely as adversarial. From a bilateral trade perspective, the controls have also created pressure — and space — for more structured, transparent long-term supply agreements between Chinese processors and Western end-users. Several Japanese and South Korean manufacturers have negotiated multi-year offtake agreements with Chinese rare earth state enterprises that provide pricing stability and supply assurance in exchange for committed purchase volumes.
Chinese rare earth companies, including China Northern Rare Earth Group and Shenghe Resources, are commercially motivated to maintain customer relationships and market access. The controls are a government tool; the companies themselves benefit from predictable export revenue. A sophisticated Western procurement team can work with that dynamic rather than against it.
The rare earth situation is ultimately a structural feature of the US-China trade relationship for the foreseeable future — not a crisis to be resolved but a condition to be managed. Companies that treat it as a one-time supply shock will be caught flat-footed by the next escalation. Companies that build it into their strategic planning, supplier diversification, and government engagement programs will find it a manageable, if complex, part of doing business in a world where critical materials and geopolitics are inseparable.