China has cultivated its monopolistic grip on rare earth minerals and permanent magnets over many decades. In 2010, when China first restricted the flow of rare earths to Japan as an act of economic statecraft, one might have expected a concerted effort by China’s trading partners to put in place an alternative source of supply. It simply did not happen. Private sector actors who attempted to break into the industry found themselves struggling as China flooded the market once its geopolitical objectives had been met. The poor economics of the industry for those operating under tighter environmental regulations and on a smaller scale than Chinese producers was sufficient to deter significant new investment.
Thirteen years later, we saw the same scenario playing out. China implemented export controls through licensing on gallium and germanium in August 2023. This was followed by similar export restrictions on antimony and graphite in December 2023. Then, in April 2025, a wider range of rare earth elements and products, including permanent magnets, were subject to licensing restrictions. In October, the Ministry of Commerce later expanded these to include extraterritorial controls. The Trump–Xi meeting in Busan resulted in a one-year suspension of October’s measures, though it appears that the licensing requirements introduced in April remain in place.
Is it different this time?
On this occasion, China’s actions appear to have induced a policy response from the rest of the world. In recent years, both the European Union (EU) and the US have passed legislation on critical minerals. In addition, alliances have been formed — at least on paper — to coordinate a plurilateral response to China’s chokehold on supply. The Quadrilateral Security Dialogue’s critical minerals working group and the Minerals Security Partnership (MSP) were formed in 2022, the EU Critical Raw Materials Club in 2023, and the G7 Critical Minerals Production Alliance in 2025, to name a few.
Despite the legislation and the demonstrations of bureaucratic intent, concrete action by the public sector has been thin on the ground. In the past few months, however, that has begun to change. The G7 Critical Minerals Production Alliance has highlighted 25 projects currently under development and receiving some form of state support. The Trump administration has been active in providing direct equity and debt support to American companies such as MP Materials, which is trying to scale up mine-to-magnet production in the US. During his Asia trip in October, critical minerals featured prominently in Trump’s discussions and deals with Japan, Australia, Thailand, and Malaysia.
In addition, some of the state-funded support is structured to help companies ride out any attempt by China to flood the market and bankrupt new competition, through mechanisms such as floor prices and off-take agreements.
The increasing level of activity — some might say panic — is, in part, testimony to the amount of time that has been wasted in the last 15 years. Analysis of current and proposed projects suggests that self-sufficiency in permanent magnets and their associated supply chains for the US and its close allies is at least 10 years away. Moreover, much will have to go right for this to be achieved. Two issues stand out. First, the target is a moving one, as growth in demand is accelerating, driven by energy transition. Second, the supply of heavy rare earths remains constrained as China and Myanmar are the two largest sources of such ores. Australia, Brazil, and Greenland are other potential sources, but what is clear is that a successful attempt to break China’s chokehold requires a multilateral effort, since supply chains will inevitably span multiple countries.
How would China respond?
The flurry of recent activity will not have escaped China’s notice. The perverse incentive of the vigorous attempt to break China’s monopoly is for China to exploit it while it lasts. This leads one to conclude that, logically, the Trump-Xi truce struck in Busan is unlikely to last. If China allows an ample supply of rare earths onto the market, governments and private-sector actors will likely stockpile. This will prevent prices from falling too far, preserving the profitability of the industry outside China and diminishing the impact of any future export restrictions. One approach could be to flood the market to test the financial resolve of the US and its allies to maintain floor prices, but this is a high-risk strategy that could result in China losing its leverage.
A different response could be to continue undersupplying the external market, with or without extraterritorial control over product allocation. In this way, Chinese suppliers will maximize the profitability of their current monopoly position while retaining the ability to inflict significant costs on adversaries through supply disruption. This strategy would be a tacit admission that their “ace” has a shelf life, but it would enable them to maximize the leverage it brings while it lasts. It could also boost demand for Chinese-made products with embedded rare earths or magnets, thereby reducing demand for the raw materials themselves.
Conclusion
While the use of industrial policy (i.e., non-market practices) to try and break the trade dependency on China in the permanent magnet supply chain, which itself was created using non-market practices, may well succeed over time, this approach is of little help in dealing with other trade dependencies. One of the lessons learned from the early days of the Russian invasion of Ukraine was that many key inputs to critical technologies today, such as neon gas, are by-products of industrial processes no longer carried out at scale in developed countries.
China’s maximalist approach to manufacturing gives it a disproportionate probability of cultivating trade dominance over Western nations and their allies. This may go unnoticed or unaddressed for decades, as we now know. When combining that lesson with the obvious need for a multilateral, or at least plurilateral, approach to break the rare earth monopoly, it becomes apparent that a holistic approach to economic security requires a multilateral trading system and geopolitical allies.
