China recently announced a major expansion of its rare earth export restrictions. This action deepens the nation’s monopoly over a resource that is the lifeblood of most global industries today. This advance comes right ahead of a likely historic meeting between Chinese President Xi Jinping and new ex-U.S. President Donald Trump. It deepens what’s already a complicated wave of rolling trade negotiations.
With China making up about 70% of the global rare earths supply, its power and influence in this specific industry is a major one. Rare earth elements are essential for manufacturing a wide array of products, including electronics, renewable energy technologies, and military equipment. In the past, China has used its monopoly power in this strategic market as a tool of trade retaliation and negotiation, making rare earths a bargaining tool themselves.
In April, China placed about 35 rare earths and related materials on the same export control list. This was a major policy reversal following a truce on trade with Washington in May. Within weeks, China began issuing single-use export licenses for rare earths. Restrictions that were recently tightened now oblige exporters to demonstrate that their materials won’t be diverted for military use. This requirement adds to the burden of exporting even more.
China’s Ministry of Commerce has now officially announced that the new rules will take effect leading up to December 1. These amendments will have a lasting positive effect on rare earth exports and related technologies. Foreign companies are required to obtain licenses from Beijing to export certain products. This extends to any products that include over 0.1% of domestically-sourced rare earth elements. Furthermore, any products made with China’s technology for extraction, refining, magnet-making or recycling will need the same licensing.
The new restrictions continue to mainly focus on the defense sector, as expected given Beijing’s strategic goal of protecting its technological development. It’s true that the Chinese government tightly controls its domestic resources and international operations. It has now precluded its citizens from unapproved offshore rare earths mining.
While enumerating these stringent measures, China has left room for exemptions under specific circumstances. The new regulations permit exports to meet emergency medical needs and disaster relief. That indicates a new willingness to be flexible about how they are done.
The real-world ramifications of these provisions may result in greater reliance on Chinese know-how and technology by other countries. Dan Wang from Eurasia Group noted, “It will give China more power than just a blunt ban.” Similarly, Wendy Cutler, a senior vice president at the Asia Society Policy Institute and a former U.S. trade negotiator, remarked that “Beijing has realized that it has leverage in this sector and is clearly not shy about using it.”
The world, in turn, is watching just as closely. China’s recent actions in the rare earth market foreshadow how easily today’s trade relations could be severed. Indeed, analysts have argued that China’s deepening expertise—particularly on the part of the Ministry of Foreign Affairs (MFA)—in integrating and negotiating with international counterparts underlies much of this dynamic.
“The Chinese side is getting more and more experienced in dealing with their counterparts and they know what their American friends want.” – Chen from The Asia Group
The dramatic events currently playing out in the rare earth industry provide a perfect example of China’s long-term game plan to dominate global trade. At a minimum, the new regulations have the potential to provoke a reconsideration among peer nations. They too will begin to reconsider their supply chains and dependence on Chinese rare earths and technologies.