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The Growing Impact of China’s Rare Earth Export Controls

China’s recent restrictions on rare earth mineral exports have sent shockwaves through global supply chains, hitting the automotive and robotics sectors hardest. However, experts warn that major Western defense companies are increasingly at risk due to their reliance on these critical materials, vital for advanced military technologies.

Renewed U.S.-China Trade Talks Signal Potential Relief

Top officials from the U.S. and China resumed intense trade negotiations in London for a second consecutive day on Tuesday, focusing heavily on easing tensions surrounding rare earth minerals and cutting-edge technology exports. The White House has indicated a willingness to relax certain chip export controls if China agrees to speed up its rare earth shipments — a move that has sparked cautious optimism among investors.

Despite ongoing talks, both sides have accused each other of backtracking on a preliminary trade understanding reached in Geneva last month, casting some uncertainty over the potential deal.

China’s Dominance in Rare Earths: A Strategic Challenge

China controls approximately 60% of the global rare earth production and processes nearly 90% of these minerals, importing raw materials from abroad for refinement. This dominance presents a strategic challenge, especially as global powers pivot towards greener energy solutions and advanced defense capabilities.

Kevin Hassett, director of the U.S. National Economic Council, expressed confidence that an agreement would soon be finalized, predicting that “shortly after a handshake, U.S. export controls will ease, and rare earths will be released in significant volumes,” enabling further negotiations on other trade issues.

Critical Minerals and National Security Concerns

According to William Bain, head of trade policy at the British Chambers of Commerce, some progress was made during the initial day of talks. However, he emphasized the urgency of resolving rare earth export restrictions, especially for minerals like samarium — crucial for manufacturing magnets used in F-35 fighter jets.

“The inability to access these materials threatens not only U.S. manufacturing but also national security,” Bain said.

European defense stocks reflected market anxiety ahead of the negotiations, with Germany’s Renk plunging nearly 8% and defense firms Saab and Rheinmetall each falling more than 3.5%.

The Role of Rare Earth Elements in Modern Defense Technology

Rare earth minerals are fundamental to high-tech defense systems, enabling sophisticated radar, sonar, laser guidance, and propulsion technologies, as detailed by the SFA-Oxford consultancy. Export restrictions now require companies to obtain special licenses for shipping these materials, complicating supply chains.

Automakers have also voiced frustration over these bureaucratic hurdles, warning of production slowdowns as inventory levels shrink. Over the weekend, China indicated a willingness to ease licensing for EU firms and granted rare earth export permits to suppliers of major U.S. automakers like General Motors, Ford, and Stellantis.

The Defense Industry’s Quiet Alarm

Gracelin Baskaran, director of the Critical Minerals Security Program at Washington-based think tank CSIS, said defense companies are quietly raising red flags over potential rare earth shortages.

“Thousands of pounds of rare earths go into each submarine and fighter jet,” Baskaran explained. She called for coordinated efforts between the U.S., EU, and Australia to stimulate both supply and demand, including tax incentives and subsidies to keep non-Chinese rare earth production viable.

Specifically, she warned that if prices for praseodymium-neodymium (PrNd) oxide remain below $60 per kilogram by 2030, nearly half of the projected non-Chinese supply could become economically unfeasible without government support.

Recent Developments in Magnet Production and Export Controls

Last month, China temporarily lifted export restrictions affecting 28 U.S. companies following a trade truce in Switzerland. However, it continues to block seven rare earth metals crucial to American defense. Many affected companies are frequent targets of Beijing’s sanctions due to their defense sector ties.

Henry Sanderson, associate fellow at London’s Royal United Services Institute (RUSI), noted that defense concerns are less publicly visible than those in automotive sectors, but still significant.

“Defense demands for rare earth magnets, especially samarium cobalt types, are smaller in volume compared to electric vehicles or robotics, but the West’s magnet production capacity remains very limited,” Sanderson said.

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China’s strategic control over rare earth minerals has exposed critical vulnerabilities in Western supply chains, particularly for defense and automotive industries. While ongoing trade talks offer hope for easing export restrictions, the need for coordinated international policy measures and investments in alternative supply sources is more urgent than ever to safeguard national security and industrial competitiveness.