China’s rare earth strategy reflects caution, not coercion
In Brief
China’s approach to global rare earth elements (REEs) export restrictions demonstrates strategic restraint rather than aggressive coercion. The restrictions announced on 4 April 2025 — though not unprecedented — mark one of the most far-reaching measures to date. Although this move has ignited fears of resource nationalism, it reflects a long-standing yet often overlooked pattern in China’s rare earth strategy.
Backed by strong state support for research and development, active solicitation of foreign investment and technology and abundant natural endowments, China emerged as a leading player in the rare earth industry in the 1990s. The United States, once the global leader, was struggling with mounting labour and environmental costs. The Mountain Pass bastnaesite mine — once the country’s sole REEs producer — closed in 2002. By 2005, the US share in global rare earth metal production had fallen to zero while China accounted for an overwhelming 98 per cent.
Beijing introduced the ‘export quota system’ in 1998 to begin regulating its rapidly expanding rare earth industry. In 2001, China joined the World Trade Organization (WTO) and pledged to comply with global trade norms — commitments that would later be called into question during the 2010 rare earth crisis.
The 2010 China–Japan standoff over the Senkaku Trawler Collision incident led the Chinese Ministry of Commerce to slash its annual REEs export quota by 40 per cent. It also halted REEs shipments — first to Japan, then to the United States and Europe — claiming annual quotas had been met. This move was widely interpreted as a retaliation against Japan.
In 2012, the United States, European Union and Japan brought the case to the WTO. The WTO ruled against China in 2014, finding its export quota on REEs incompatible with WTO rules. In response, Beijing abolished its long-standing export quota system in early 2015, replacing it with a licensing regime requiring State Council permission for export agreements.
The 2010 crisis encouraged a continuous but limited erosion of China’s dominance — from 2010–2024, China’s share in global rare earth mining activities dropped from 92 per cent to 69 per cent. But China still managed to maintain an 85 per cent share of control over global rare earth processing and 100 per cent control over the heavy rare earth processing in the world.
After the 2010 rare earth crisis, Japan turned to Lynas — an Australian mining company with refining facilities in Malaysia — in search of alternative supply. By 2019, Lynas supplied nearly one-third of Japan’s REEs demand. In 2025, Lynas became the first company to produce heavy REEs outside China.
Amid the current US-led trade war and deteriorating US–China relations, Beijing has issued another export restriction order. But this time, China has avoided an outright ban. Companies hoping to export the seven REEs included in the restriction must first obtain a licence from the State Council. American Elements, a Los Angeles-based company, was told that it would take 45 days for the Chinese exporter to obtain a licence and resume export.
The absence of an outright prohibition reflects Beijing’s concern that another ban may further erode China’s industry dominance. The 2010 crisis and subsequent — albeit limited — diversification of Japan’s REEs supply, have made China aware that overusing its rare earth leverage might ultimately harm market control. The licensing regime, though still restrictive, allows enough policy flexibility for China to act in response to any unforeseen changes in the ongoing trade war. It enables China to selectively restrict exports to certain countries while continuing shipments to others, minimising the risk of triggering a broader push for alternative sources of REEs.
But other countries may perceive the licensing regime differently. Following the US–China trade deal reached on 12 May 2025, China has started issuing permits for some REEs exports, though the licensing system’s slow pace continues to lag behind global demand. Many factories in both the United States and Europe would be forced into closing ‘in the coming days and weeks’, if China does not fully resume its rare earth exports. If this trend continues, foreign policymakers would very likely regard the licensing regime as a de facto ban, possibly triggering another global push for alternative REEs supply.
The United States has adopted a different path — reviving its domestic REEs mining industry to protect its critical sectors from supply disruptions. But many structural challenges from the 1990s remain unresolved. Environmental and labour costs are still a heavy burden for US companies, while Chinese competitors maintain a significant edge through state support and lower-priced products.
China is not ready to relinquish its dominance, viewing the West’s reliance on its REEs supply as important to national security. The export restriction on REEs — a long-held economic weapon — should be seen less as an attempt to inflict immediate economic damage and more as a strategic show of resolve enabling Beijing to strengthen its position in negotiations without triggering full-scale diversification efforts.
US policy missteps have deepened strategic vulnerabilities and antagonised China, creating a similar dilemma to the 2010 crisis. For the United States, shifting reliance, diversification and reviving its domestic rare earth industry are not feasible options in the short term. The United States should learn from its successful experiences of cooperation with China instead of pursuing foreign policy shaped by distrust.
For China, even though REEs have proven to be an effective strategic instrument, Beijing must take care not to overplay its hand. Excessive use of REEs as negative leverage risks eroding global confidence in the reliability of Chinese supply, ultimately undermining China’s authority in the industry.
Mengzhen Liu is Assistant Research Fellow at Huayang Center for Maritime Cooperation and Ocean Governance based in China.