Overview
China controls 70% of rare earth mining and 90% of refining—the 17 obscure elements that power everything from F-35 fighter jets to iPhones. In April 2025, Beijing weaponized that dominance. When Trump announced Liberation Day tariffs, China retaliated by restricting exports of seven rare earth elements. By October, it expanded controls to twelve elements and invoked the foreign direct product rule—the same tool America used to choke China's chip industry—claiming jurisdiction over any product globally that touches Chinese rare earth technology.
Each F-35 contains 920 pounds of rare earths. American missiles, satellites, and precision weapons depend on Chinese-refined materials. When China tightened export licenses in October, prices spiked 5%, auto production halted, and defense contractors scrambled. This isn't the 1973 oil embargo—it's more sophisticated. Beijing doesn't ban exports outright. It delays licenses, sets processing standards, and maintains plausible deniability while demonstrating it can strangle Western tech and military supply chains whenever it chooses.
Key Indicators
People Involved
Organizations Involved
China's primary authority for trade policy and export licensing.
America's only operating rare earth mine and processing facility, based in California.
Australian miner operating the Mt Weld mine with processing facilities in Malaysia.
Timeline
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Military Export Ban Takes Effect (Suspended)
PolicyDate when automatic denials for military end-users would have started, but suspended under Busan agreement.
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Trump-Xi Busan Summit Deal
NegotiationLeaders agree to one-year trade truce: U.S. cuts tariffs to 47%, China suspends rare earth export controls.
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China Expands Controls, Invokes FDPR
EscalationMOFCOM Announcement No. 61 adds five more elements and claims jurisdiction over any product globally using Chinese rare earth technology.
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Pentagon Buys MP Materials Stake
StrategicDepartment of Defense acquires 15% of MP Materials for $400 million to secure domestic rare earth supply.
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Tariff War Escalates to 145%
EconomicTit-for-tat tariff increases push U.S. rate to 145% and China's to 125%, choking bilateral trade.
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China Restricts Seven Rare Earth Elements
RetaliationBeijing announces export controls on samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium in direct response to U.S. tariffs.
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Trump's Liberation Day Tariffs
PolicyPresident Trump declares national emergency, imposes 54% total tariff on Chinese goods using IEEPA authority.
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Technology Export Ban Announced
PolicyChina bans export of rare earth separation, refining, and magnet-making technologies.
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China Restricts Gallium and Germanium
PolicyBeijing imposes licensing requirements on semiconductor-critical materials, retaliating against Western chip sanctions.
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China Eliminates Export Quotas
PolicyFollowing WTO ruling, China drops quota system but begins developing more sophisticated technology-based controls.
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WTO Rules Against China
LegalWTO panel finds China's export quotas violate trade rules, rejecting environmental conservation defense.
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U.S., EU, Japan File WTO Case
LegalObama administration joins allies in challenging China's export quotas at WTO Dispute Settlement Body.
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China Slashes Export Quotas 72%
PolicyBeijing cuts second-half 2010 export quota by 72% compared to previous year, triggering global price spike.
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China Cuts Rare Earth Exports to Japan
GeopoliticalFollowing territorial dispute over Senkaku Islands, China unofficially halts rare earth shipments to Japan for two months, demonstrating weaponization potential.
Scenarios
China Reinstates Controls, West Scrambles
Discussed by: Center for Strategic and International Studies, Chatham House, Carnegie Endowment
When the one-year Busan truce expires in October 2026, China resumes export controls with tighter enforcement. Licensing delays stretch to months. Rare earth prices spike 30-50% as they did during the 2010-2011 crisis. Western auto manufacturers and defense contractors face production slowdowns. The Pentagon accelerates MP Materials expansion and Lynas partnerships, but refining capacity takes 3-5 years to build. Meanwhile, China leverages controls for concessions on Taiwan policy, South China Sea access, or technology transfer restrictions.
Western Supply Chains Diversify Successfully
Discussed by: Resources for the Future, Baker Institute, Atlantic Council
U.S., EU, and Japan quadruple investment in alternative sources—Australian mines, Greenland exploration, recycling technology. By 2028, China's refining share drops from 90% to 60%, similar to OPEC's oil production decline after 1973. Prices stabilize at modestly higher levels. China retains influence but loses veto power over Western manufacturing. Joint EU-Japan procurement and DOD-funded domestic processing create resilient supply chains. Beijing's rare earth weapon becomes a manageable inconvenience rather than existential threat.
Permanent Trade War, Bifurcated Supply Chains
Discussed by: Brookings Institution, Institute of Geoeconomics, SFA Oxford
U.S. and China abandon integration entirely. Beijing restricts all rare earth exports to Western defense contractors and strategic tech firms. Washington subsidizes complete domestic supply chain at enormous cost—DOD estimates $50 billion for full mining-to-magnets capability. Two parallel rare earth markets emerge: Chinese-controlled for Belt and Road countries, Western for allied nations. Global tech innovation slows as duplicated infrastructure increases costs. Both sides pay premium for strategic autonomy.
WTO Ruling Forces China to Retreat
Discussed by: European Parliament Think Tank, U.S. Trade Representative
U.S., EU, and Japan file WTO case as they did in 2012. Panel rules China's extraterritorial FDPR claims and military end-user bans violate trade commitments. China faces choice: comply as it did in 2015, or ignore ruling and risk broader WTO retaliation. However, unlike 2015, China may calculate that strategic leverage outweighs trade law compliance. Previous WTO victory took two years and China still controls processing regardless of export quota legality.
Historical Context
1973 OPEC Oil Embargo
October 1973 - March 1974What Happened
Arab members of OPEC proclaimed an oil embargo against nations supporting Israel in the Yom Kippur War, cutting production 25% and banning exports to the U.S. Oil prices quadrupled from $3 to $12 per barrel. Gas stations ran dry, economies entered recession, and Western nations faced energy rationing.
Outcome
Short term: Five-month embargo caused economic crisis, inflation spike, and political turmoil across the West.
Long term: High prices incentivized non-OPEC production. Within a decade, OPEC output dropped from 1,500 to 850 million tonnes annually while rest-of-world production doubled to 2,000 million tonnes.
Why It's Relevant
Deng Xiaoping said 'the Middle East has oil, China has rare earths,' recognizing parallel strategic chokepoint. But today's contest differs: China controls processing more than mining, uses regulation rather than embargo, and maintains plausible deniability while shaping adaptation terms.
2010 China-Japan Rare Earth Dispute
September 2010 - November 2010What Happened
After Japan detained a Chinese fishing captain near disputed Senkaku Islands, China unofficially halted rare earth shipments to Japan for two months. Japan imported 90% of its rare earths from China, facing immediate industrial disruption. Beijing demonstrated supply chain weapon without formal embargo.
Outcome
Short term: Japan scrambled for alternative sources, prices spiked globally, diplomatic crisis intensified.
Long term: Japan invested heavily in Lynas (Australia), built stockpiles, and reduced Chinese dependency from 90% to 60%. Japanese consumption dropped by half through efficiency and substitution.
Why It's Relevant
First modern demonstration that rare earth dominance could be weaponized for geopolitical objectives. Proved informal restrictions could achieve policy goals while avoiding WTO violations. Led Japan to pioneer diversification strategies now adopted by U.S. and EU.
2018-Present U.S. Chip Export Controls on China
October 2018 - PresentWhat Happened
U.S. imposed escalating restrictions on semiconductor exports to China, invoking the Foreign Direct Product Rule to claim jurisdiction over any chip made anywhere using American technology. October 2022 controls targeted AI chips and manufacturing equipment. December 2024 expansion added 24 equipment types and restricted high-bandwidth memory.
Outcome
Short term: Devastated China's advanced chip industry, forced SMIC and Huawei to redesign around restrictions, created bifurcated semiconductor supply chain.
Long term: China accelerated domestic chip investment ($150 billion+), developed workarounds, and created alternative standards. Effectiveness debated as China achieved 7nm production despite controls.
Why It's Relevant
China's October 2025 rare earth controls explicitly invoked FDPR—turning America's weapon against it. Beijing claims jurisdiction over any product globally using Chinese rare earth technology, mirroring U.S. semiconductor playbook. Shows how supply chain dependencies create reciprocal vulnerabilities in great power competition.