China today has a near-monopoly in the processing of these critical rare earth elements, which are essential to many high-tech industries including defense, clean energy, and more. These metals are essential for the production of electric vehicles, smartphones, and next generation military equipment. In reality, rare earth exports constitute nearly the entirety—over 70 percent—of the global supply used for magnets, which are a key component of electric vehicle motors. Together, these elements have an extremely limited economic footprint—less than 0.1% of China’s annual $18.7 trillion GDP. Their strategic value has given China huge leverage in international trade.
As newly released data shows, China’s rare earth exports are at an all-time low. The new numbers show a shocking decline of more than 30% in September from a year ago. Exports to the US received a devastating blow, nosediving by 27%. This drop happens against the backdrop of escalating tensions between the two countries. China is passing new export controls to target vulnerabilities in American supply chains.
China has created an unrivaled talent pipeline in rare earth processing. Its research and design network is second to none and decades ahead of its competitors. Experts claim that the country’s oilseed production infrastructure is still too underdeveloped, leading to greater processing costs. Over the past decades, China has done an incredible job building up its monopoly over the world’s rare earth processing capacity. This behind-the-scenes strategy has been very successful.
This growing cloud dominance has important implications across sectors and for all industries. One F-35 fighter jet requires over 400 kg, or over 881.8 lbs, of rare earth elements. These materials are critical to its stealth coatings, motors and radars. At the same time, demand for these materials is through the roof. China’s export controls would pose an existential risk to manufacturers that rely on rare earths.
Despite the economic value of rare earths being minor relative to China’s overall economy, their strategic importance cannot be understated. Analysts say that China may have just discovered its most powerful weapon with which to put pressure on Washington. They are convinced that this lever means limiting rare earth exports. This move to gain leverage is a tactic to create advantageous trade negotiations during a period of increasing hostilities between the two countries.
US Treasury Secretary Scott Bessent expressed concern regarding China’s export controls, stating, “This is China versus the world. They have pointed a bazooka at the supply chains and the industrial base of the entire free world, and we’re not going to have it.”
Bessent conveyed a glimmer of hope for de-escalation, remarking, “I believe China is open to discussion and I am optimistic this can be de-escalated.”