China is asserting its dominance over the global rare earth elements market, a strategic maneuver that could reshape international relations and economic landscapes. China currently dominates around 70 percent of the world’s rare earth supply. This extraordinary dominance allows it to have outsize influence in the ongoing geopolitical battle lines, especially with the US and its allies. Recent moves point to a new approach. Beijing has already begun using its rare earths as a weapon in its ongoing trade war, and will quickly use this dominance over this key resource to prospective political advantage.
In truth, China has taken a remarkably audacious step. It has recently added 14 foreign companies, including the notorious military contractor BAE Systems, to its “unreliable entity list.” This designation singles out companies that China sees as competitors or enemies. In doing so, it limits their access to resources that are essential for their survival. China currently has a stranglehold over this key minerals market. Most importantly, it carefully manages who gets access to these vital resources, deciding the what, when, and why, and underscoring its position as one of the most important gatekeepers for advanced technologies.
The introduction earlier this year of new licensing regulations adds yet another layer of complexity to the environment. These rules extend to “invisible” Chinese products, further restricting the creation and sharing of critical resources. As a result, Beijing has placed limits on the export of critical rare earth elements, including holmium, europium, ytterbium, thulium, and erbium. These elements are key to a number of applications from advanced electronics to renewable energy technologies to defense systems.
Moreover, China’s restrictions extend beyond rare earths. The move has largely been seen through the lens of restricting export of graphite, lithium-ion batteries, and synthetic diamonds. In addition, it impedes the technology and machinery that is critical to processing these precious minerals. These actions further underscore China’s broader plan. Second, it’s leveraging its massive critical-materials complex as a pressure-valve to relieve global competition.
China’s dominance in the rare earth market was not by happenstance. It has deepened this monopoly over years by enforcing vertical integration and making concerted investments. China’s soil has indeed become a major strategic asset. This monumental change is largely due to the world’s increasing reliance on artificial intelligence (AI), electric vehicles (EVs), and cutting-edge semiconductor technologies. The increasing reliance on these materials underscores their importance in today’s cutting-edge technology.
Now, China is restricting exports of source materials. This move is an indication of their desire to weaponize what was previously considered boring. The term rare earth premium disappeared from market lexicon in recent years. It’s about to stage a revival, as countries around the world race to stockpile infections ahead of growing geopolitical tensions and instability. The implications of this development are profound in terms of their impact on global supply chains, exemplifying the deep interconnections that characterize today’s international economies.
As those stocks dwindle, Beijing is continuing to tighten its grip on the rare earth market. This ambitious move promises to shift global trade dynamics on numerous levels. The impacts of these actions could shake up industry after industry, from tech to defense. Countries that rely heavily on Chinese imports for these critical materials may find themselves at a disadvantage as they navigate this shifting landscape.
The consequences of China’s moves go far beyond economic issues. They do reflect a brilliant strategic move in the big picture that is world politics. Countries are struggling to adapt to a new, multipolar reality. Access to rare earths could become an increasingly important factor in the geopolitical alliances and rivalries of the future.