How do China's Export Restrictions on Rare Earths Impact Global Trade and Major Industries?
Marina Gruzer | 16 June 2025
Summary
China's tightening of rare earth element (REE) export licensing, in response to United States (U.S.) tariffs, has triggered global concern among automakers and defense industries over critical mineral shortages, as China controls about 60% of REE mining and 90% of global REE refining.
While efforts to diversify supply chains are underway—particularly in the U.S., European Union (E.U.), —capacity and infrastructure outside China remain insufficient to meet demand in the near term.
With escalating U.S.-China trade tensions and no clear agreement in sight, REE supply disruptions are likely to persist, pushing up prices and prompting long term policy-driven efforts to enhance supply chain resilience.
In response to U.S. President Trump’s recent tariff policy targeting Chinese imports and former President Biden’s escalation of Sino-U.S. trade tensions, Beijing has been responding with limits on rare minerals exports since last year. Following China’s recent restrictions on heavy Rare Earth element (REE) and magnet export licensing, implemented in April 2025, global producers across automobile and defence manufacturing industries have expressed concerns regarding declining supplies of critical minerals. Beijing’s licensing limitations apply to samarium, gadolinium, terbium, dysprosium, lutetium, scandium and yttrium, which are critical in the automobile and defence industries. Crucially, China is leading globally in REE processing, accounting for an estimated 90% of global REE refining capacity. While there are REE mines and producers outside of China, for example in Australia, Japan and Vietnam, mine-to-magnet production and supply chains remain in relatively early stages of development and are highly unlikely to achieve sufficient capacity in the near future.
The supply chain disruptions demonstrate a significant reliance on Chinese mineral exports, which is highly likely to encourage long-term efforts from automakers and defence industries to diversify suppliers. Since 2020, the U.S. Department of Defence has invested over USD 439m towards developing domestic REE processing, but the U.S. only produced an equivalent of less than 1% of China’s 2018 magnet production in 2025. Similarly, the E.U.’s automakers have received significantly fewer export licenses than expected, with some manufacturers considering creating stockpiles to protect against longer term supply threats. Overall, the E.U. has lowered its reliance on Chinese REE imports from 98% to 46.3%, but current stockpiles may not last until the end of 2025. Therefore, limited sustainable diversification is likely to push for even more supply chain resilience policies.
With tense broader trade disputes between the U.S. and China, it is unclear if effective agreements will be made in the short term. According to the E.U.’s auto supplier association, CLEPA, there has been a shut down of several production lines because only a quarter of the expected export licenses were granted since April 2025. Consequently, automakers and defence industry manufacturers can not rely on long-term supply chain-based policies, which gives China significant leverage. Last week, Trump and Xi held a phone call and agreed to initiate a new round of trade talks in London. The negotiations set out a framework to implement the consensus reached during the phone call and last month’s Geneva meeting which established a pause in reciprocal tariff escalation. Despite the leaders’ willingness to negotiate, it remains unclear whether REE agreements will be sustainably upheld in the long term, given the persistence of geopolitical tensions. Initially, the Geneva talks eroded quickly following Trump’s continued restrictions on chip design software sales and Xi not moving forward with the agreed REE export licensing approval.
Li Yang/Unsplash
Forecast
Short-term (Now - 3 months)
Until China’s REE export licensing becomes more streamlined, it is almost certain REE prices will increase as supply and alternative REE mine-to-magnet processing capacity remain restricted.
Medium-term (3-12 months)
It is likely that more global manufacturers represented by the Alliance for Automotive Innovation, who signed a May letter calling for Trump to address the licensing problem, may face production limitations due to reduced access to Chinese REEs.
Long-term (>1 year)
Alternatives to Chinese REE processing are highly unlikely to develop competing supply chains in the next few years due to the long term investment and technological development required. As the largest producer of processed REEs outside of China, Australian producers still send its oxides to China for final refining.
