China Tightens Rare Earths Controls
China has escalated its export controls on rare earths and dual-use technologies, with new measures reportedly targeting Japan. The move has caused a spike in global rare earth prices, highlighting China's market dominance and creating supply uncertainty for U.S. and European manufacturers. Western nations are reportedly exploring an independent pricing mechanism to counter the volatility.
- Recent measures by China's Ministry of Commerce (MOFCOM) in October 2025 established a new export control regime that, for the first time, asserts extraterritorial jurisdiction. This requires foreign companies to get a Chinese license to export products made in other countries if they contain Chinese-origin rare earth materials. - China's strategy has evolved from using export quotas and tariffs, which were successfully challenged at the WTO in 2014, to now restricting the export of rare earth processing and magnet manufacturing technologies. In December 2023, Beijing banned the export of technology for creating rare earth magnets and for extracting and separating these strategic minerals. - The country's market power is concentrated in the midstream of the supply chain, as it controls approximately 80% of global rare earth processing and 90% of the manufacturing of high-strength rare earth magnets essential for electric vehicles and wind turbines. - The latest controls specifically target heavy rare earths (HREEs) such as dysprosium and terbium, for which China effectively has a monopoly on processing. These elements are critical for the high-temperature performance of permanent magnets used in EV motors and advanced defense systems. - In response, the U.S. Department of Defense has invested over $439 million since 2020 to support a domestic supply chain, including direct investments in companies like MP Materials. More recently, the Trump administration announced "Project Vault," a nearly $12 billion strategic reserve for rare earth elements funded by government loans and private capital. - Western companies are slowly building a non-Chinese supply chain; MP Materials operates the only commercial-scale rare earth facility in the U.S. at Mountain Pass, California, while Australia's Lynas Rare Earths is the only significant producer of separated rare earths outside of China, with a processing plant in Malaysia. - The demand for key rare earths like neodymium, praseodymium, dysprosium, and terbium is projected to surge by 2040 due to the growth in electric vehicles and wind power. An electric vehicle requires 1-2 kg of neodymium and praseodymium for its permanent magnets. - The new Chinese regulations require exporters to obtain a license from MOFCOM, a process that can take 45 days and mandates detailed end-use and end-user verification to ensure the materials are not used in military or other sensitive applications.
