In the world of high-tech manufacturing, rare-earth magnets are the overachievers: critical to electric vehicles, wind turbines, guided missiles and smartphones, yet largely invisible. Until, that is, they vanish. In May China’s exports of rare-earth magnets dropped by 74% year on year—the steepest fall on record. Shipments to America plunged 93%, to barely 46,000kg. The cause: new licensing controls Beijing introduced in April, purportedly for compliance purposes. The effect: geopolitical shudders across Detroit, Düsseldorf and the Pentagon.
China dominates the rare-earth value chain with near-monopoly control. It mines around two-thirds of global rare-earth minerals and processes about 90% of them. Magnets made from these elements (especially neodymium, dysprosium and terbium) are indispensable in everything from Tesla drivetrains to Lockheed Martin’s F-35s. When Beijing throttles supply, the rest of the world scrambles.
That scramble is now visible. In June the Trump administration accused China of deliberately slow-walking licence approvals in breach of a trade truce agreed in Geneva in May. Beijing retorted it was merely enforcing “standard regulatory procedures”, a phrase often deployed when economic policy is being wielded as foreign policy. Trade representatives from both countries reconvened in London this month to salvage the deal. The resulting framework, still awaiting presidential sign-off, promises temporary relief: fewer tariffs in exchange for resumed flows. But the underlying dynamic remains unchanged—and increasingly asymmetric.
China’s magnet manufacturers are not unaffected. JL Mag Rare-Earth, which counts Tesla, Bosch and GM among its customers, saw overseas sales fall to less than 20% of revenue in 2024, with direct American exports below 10%. Zhong Ke San Huan High-Tech, another major supplier, is even more exposed abroad: roughly 60% of its revenue now comes from overseas buyers. Both firms have begun receiving export licences again but the regime’s architecture—six-month validity, opaque criteria—ensures the government keeps its hand on the tap.
This is not China’s first flirtation with rare-earth leverage. In 2010 after a maritime spat with Japan, Beijing temporarily blocked rare-earth exports to its neighbour, causing prices to soar and memories to harden. A decade and a half later the dependency has only deepened. The West’s efforts to build alternative supply chains—from Australia’s mines to Estonia’s processing plants—have progressed slowly. Environmental concerns, capital constraints and permitting delays remain stubborn hurdles. America’s only significant rare-earth mine, Mountain Pass in California, still sends its ore to China for processing.
Some see the export curbs as a defensive move. Margins for Chinese magnet-makers are shrinking at home, prompting greater reliance on overseas demand. The new licensing system, in theory, means Chinese firms are not “dumping” sensitive technology abroad or aiding military competitors. In practice it gives Beijing a toggle: enough discretion to signal displeasure without triggering open conflict. The ability to disrupt without formally banning is fast becoming China’s favourite form of economic statecraft.
Western responses remain disjointed. The Biden administration signalled support for “friend-shoring”, moving critical supply chains to allied countries. The European Union has proposed legislation to secure raw materials deemed “strategic”, including rare earths. Japan, scarred from 2010, has made the most progress, stockpiling reserves and diversifying imports. But coordination is patchy, and cost remains an issue. Recreating China’s integrated rare-earth supply chain elsewhere would be eye-wateringly expensive and take years, if not decades.
Markets have yet to fully price in the fragility. Electric vehicle makers are particularly vulnerable. Substitutes for rare-earth magnets exist but they are typically less efficient, heavier or pricier. Carmakers can redesign motors, but not overnight. In defence the stakes are starker: it is hard to replace rare earths in radar systems or precision-guided missiles without compromising capability. The Pentagon has belatedly begun investing in domestic processing but the industrial base remains thin.
The Geneva-London détente, if finalised, may provide a short-term reprieve. But it is unlikely to change China’s calculus. The export-control regime remains intact, giving Beijing future leverage. And the fact that government grants comprised 45% of JL Mag’s net profit last year suggests the state is not merely regulating the industry: it is underwriting it.
That should give Western policymakers pause. A world increasingly defined by strategic rivalry cannot afford supply chains that hinge on political favour in Beijing. Yet alternatives will be neither cheap nor immediate. Until then the West must live with a paradox: the technologies that define its future—from green energy to AI warfare—depend on metals it does not control, processed in places it cannot influence.
Rare earths may be chemically obscure. But they are politically magnetic. ■
