China’s command of rare earth elements (REEs) is not an accident of geology but the outcome of policy choices made over decades.
Beijing built capacity from mine to magnet while many Western firms exited the messy, low-margin business of chemical separation and allied mid-stream steps. Today China controls the chokepoints that matter most, and it is increasingly enforcing that position through licensing and export controls.
The modern industry began in the United States. Mountain Pass in California supplied REE oxides for early colour televisions and later high-tech uses, but repeated wastewater spills in the 1990s and rising environmental compliance costs triggered shutdowns and a wider retreat from domestic processing. The vacuum was filled by China, which scaled both upstream mining and the mid-stream separation capacity that turns ore into usable oxides and metals.
Beijing’s upstream anchor is Bayan Obo in Inner Mongolia—long described by the USGS as the world’s largest rare-earth deposit. More important than ore, however, is the build-out of chemical separation, alloying and magnet-making capacity, areas where China remains the principal global node. That mid-stream dominance means even ore mined elsewhere has often had to be shipped to China to reach market.
The leverage was demonstrated in 2010, when shipments to Japan were curtailed after a maritime incident, sending prices sharply higher and forcing manufacturers to scramble for alternative supplies. The episode established that export management in rare earths could transmit quickly into downstream sectors.
Since 2023, China has widened controls beyond oxides to adjacent inputs—gallium and germanium for compound semiconductors, and sensitive graphite grades for battery anodes—via permit regimes that tighten or relax with policy needs. These measures sit alongside a progressively stricter REE licensing system that now covers additional elements and, in practice, slows approvals for certain magnet exports.
The latest tranche of controls, announced in 2025, formalises what industry had been feeling for months: China produces the vast majority of the world’s processed rare earths and magnets and is prepared to regulate them more tightly. September shipments fell and exporters report more onerous licence scrutiny; European buyers cite delays and uncertainty. Officials in Beijing insist these are legitimate administrative measures for strategic resources.
Why it matters is straightforward. Small volumes of specific elements—neodymium (Nd), praseodymium (Pr), dysprosium (Dy) and terbium (Tb)—enable high-performance permanent magnets for EV traction motors and wind turbines; other rare earths underpin catalysts, phosphors and advanced electronics. Defence dependence is acute: open-source estimates and defence analyses put the rare-earth content of an F-35 in the hundreds of kilograms, with similar reliance across sonar, radar and guidance systems.
Public datasets show how concentrated the system remains. USGS trade tables indicate the United States sourced roughly 70% of its rare-earth compounds and metals imports from China in 2020–23, while international reviews highlight that processing and magnet production are even more China-centred than mining. Analysts and officials consistently cite Chinese shares around 90% for processing and magnets.
Europe has diagnosed the same risk. The EU’s Critical Raw Materials Act (CRMA) sets 2030 benchmarks—10% of strategic raw material needs extracted in the EU, 40% processed, and 25% recycled—aimed at reducing single-supplier exposure. Brussels has approved strategic projects across the bloc and is streamlining permits for extraction, processing and recycling.
There is tangible industrial movement. Neo Performance Materials has opened Europe’s first large-scale NdFeB magnet plant in Narva, Estonia, alongside heavy rare-earth separation capability, with contracts into the German automotive supply chain.
The United States and allies are also rebuilding inventories and mine-to-magnet capacity, but the hardest lift is the mid-stream: solvent extraction plants, specialist metal- and alloy-making, and sintered-magnet lines. USGS summaries now explicitly include NdPr oxide and magnet blocks in potential stockpile acquisitions—an acknowledgement that buffer stocks are needed while new capacity ramps. Meanwhile, market watchers warn that every new Western project faces the risk of a price response from China that can render it uneconomic during commissioning.
What should the West do?
De-risk the mid-stream with bankable demand. Offer floor-price or offtake guarantees for separation plants and magnet makers in allied jurisdictions. Defence and critical-infrastructure tenders should preference qualified non-Chinese magnets where feasible to anchor volumes through the cycle.
Permit quickly, not loosely. The lesson from Mountain Pass is not to ignore environmental costs but to manage them predictably. Clear rules on waste handling and community benefits shorten timelines and reduce litigation without the corner-cutting that doomed earlier efforts.
Coordinate allied industrial policy. Map specialisation—Australia in mining, the US and EU in separation and magnets, Japan and Korea in high-spec powders and sintering—and use export finance, guarantees and shared testing standards to avoid duplication. The EU’s CRMA provides a framework for accelerated permitting and recycling standards; align it with US, Japanese and Australian instruments.
Build strategic stocks of heavy rare earths. Dysprosium and terbium underpin high-temperature performance in motors and actuators. Buffer inventories at defence ministries and grid operators can absorb licensing shocks while new capacity beds in.
Design for thrift and substitution. Automakers and turbine manufacturers are already cutting Dy/Tb content or offering REE-lean variants. Public R&D should push iron–nitride and advanced ferrite magnet systems where performance allows, and scale recycling from industrial scrap and end-of-life magnets. The IEA’s outlook supports demand-side efficiency alongside supply diversification.
Tighten provenance and compliance. As China’s licensing reaches into products that merely contain China-origin inputs, require disclosure of magnet and powder origin in sensitive sectors and develop certification to verify claims. This limits the risk that an extra-territorial licence condition becomes a back-door veto on allied trade.
Plan for a two-track market. If controls persist, expect a bifurcated system: a secure, higher-cost allied chain and a cheaper, politically influenced Chinese one. That reality argues for redundancy, not autarky, and for long-dated policy stability so investors can underwrite projects measured in decades.
The end-state is diversification rather than complete disengagement. A regionalised chain—European processing under the CRMA, allied heavy-rare separation, strategic reserves, credible substitutes and verified provenance—can turn a brittle system risk into a manageable cost. Given the centrality of REEs to electrification, semiconductors and defence, that shift is now a strategic, not merely commercial, objective.
First published on euglobal.news.
EU seeks US coordination after China tightens rare earth export curbs
