10 October 2025

China’s REE Impact on Global Supply Chains and Industry

Strategic leverage, global disruption, and the Western response

China has taken a decisive step to consolidate control over critical materials by introducing sweeping new export controls on rare earth elements and associated technologies. Announced by the Ministry of Commerce (MOFCOM) on 9 October 2025, these measures represent the most extensive tightening of China’s rare earth regulatory framework to date. Their timing, one day before President Donald Trump canceled his planned meeting with President Xi Jinping at the APEC summit in South Korea, signals a deliberate act of strategic escalation.

The legislation marks a major escalation in the global contest for industrial sovereignty. It carries significant implications for technology, defence, and manufacturing supply chains, positioning China as the world’s dominant producer and the regulator and gatekeeper of materials essential to advanced industry. By weaponising its control over extraction, processing, and magnet production, Beijing is transforming rare earths from an economic asset into an instrument of geopolitical leverage.

To implement the new framework, MOFCOM has issued a coordinated series of Announcements Nos. 55 through 62, each addressing a specific stage of the rare earth value chain. Collectively, these directives define the materials, technologies, and equipment now subject to control and establish new mechanisms for licensing, traceability, and compliance. The result is a comprehensive system governing the export of physical resources and the transfer of technical expertise, converting strategic intent into enforceable law.

Governments, corporations, and investors are now assessing the scale of disruption, warning of deepening strategic vulnerability across critical industries. The United States has described the legislation as a direct challenge to global technological stability, and allied economies are developing strategies for resilience focused on diversification of supply, industrial redundancy, and secure access to critical materials. For the West, this is no longer about competition but survival, requiring immediate action to rebuild industrial capacity, strengthen value chains, and secure strategic autonomy.

Jamie Underwood

Principal Consultant

U.S. retaliatory measures: Escalation and economic fallout

In a direct response to China’s new export controls on rare earth materials, President Donald Trump announced on 10 October 2025 an unprecedented escalation in U.S. trade measures. The United States will impose an additional 100% tariff on all Chinese goods effective 1 November 2025, on top of existing 30% tariffs, bringing the total tariff burden to approximately 130%.

In a Truth Social statement, the President framed the move as a "defensive act of economic sovereignty," declaring that the United States "will no longer tolerate the weaponization of global supply chains." The announcement also included export controls on all "critical software", extending Washington’s technological confrontation with Beijing beyond hardware and materials.

The new tariffs mark a dramatic reversal from the May 2025 U.S.-China de-escalation agreement, which had temporarily reduced tariffs to stabilise markets ahead of the APEC summit. That accord now lies in tatters, following China’s expanded rare earth export restrictions announced on 9 October 2025. The new measures added five more elements (samarium, gadolinium, lutetium, europium, and ytterbium) to its controlled list and imposed new "foreign direct product" rules.

Enforcement and global impact

China is constructing an extensive enforcement system to ensure transparency and compliance throughout global supply chains. This framework imposes new obligations on exporters and downstream users and marks a significant evolution in how Beijing tracks and regulates strategic materials. Key elements include:

• Compliance notice regime: Exporters must disclose detailed information on the origin, composition, and transfer of all controlled materials. This establishes a traceable chain of custody for Chinese-origin rare earths and allows regulators to verify compliance at every stage of production and trade.

• Non-automatic licensing system: Rather than imposing outright bans, MOFCOM will approve exports on a case-by-case basis. This enables Beijing to adjust market access according to political, economic, or diplomatic priorities, while maintaining exemptions for humanitarian, medical, or cooperative purposes.

• Strategic leverage: This flexibility allows China to reward compliant partners and restrict those pursuing adversarial policies, transforming export control into an active instrument of geopolitical influence.

The consequences extend far beyond trade. These measures are a deliberate assertion of technological sovereignty, reshaping the global balance of industrial dependency. The impact will be most visible in the defence, semiconductor, renewable energy, and automotive sectors, where rare earths underpin key production capabilities.

China’s dominance in the rare earth market gives it unrivalled leverage over global supply and pricing. With most mining, processing, and magnet manufacturing capacity located within its territory, Beijing’s policy decisions can have immediate and global consequences. The new framework strengthens this dominance, cementing China’s position as the indispensable hub of the advanced materials supply chain.

The introduction of new compliance and licensing requirements is expected to create short-term bottlenecks and supply disruptions, particularly affecting manufacturers in the United States, Japan, South Korea, and Europe. Companies are likely to face increased costs, operational delays, and regulatory uncertainty as they adapt to the new controls. It will take years for Western nations to build the refining and magnet production capacity necessary to reduce dependence on Chinese supply meaningfully.

Beyond economics, the legislation functions as a strategic instrument of state policy, enabling China to respond to foreign technology restrictions, protect its domestic innovation base, and project influence across the global industrial ecosystem. By tightening control over rare earths, Beijing is both defending its industrial interests and reshaping the distribution of technological power. Rare earth policy now operates as an integrated component of China’s broader economic, diplomatic, and national security strategy.

China expands export controls across critical materials and advanced manufacturing

The scope of the new controls now extends well beyond rare earth elements, encompassing multiple categories of critical materials central to global industry, advanced manufacturing, and the clean energy transition.

China has widened existing export restrictions on graphite to include synthetic graphite materials, effective 8 November 2025. The measures cover artificial graphite anode materials used in lithium-ion batteries, mixtures with natural graphite, and the equipment and processes required for their production. These controls directly target electric vehicle and energy storage supply chains, where Chinese producers already dominate global anode material capacity, tightening Beijing’s leverage over the global clean energy transition.

MOFCOM has introduced new export permit requirements for high-performance lithium-ion batteries with gravimetric energy density above 300 Wh/kg, as well as for cathode materials, precursors, and related manufacturing equipment. By restricting the transfer of advanced battery technology abroad, these measures constrain the localisation of next-generation energy storage production in the United States, Japan, and Europe, slowing Western efforts to develop self-sufficient battery supply chains.

The new framework extends to superhard materials, including diamond powders, single crystals, wire saws, grinding wheels, and chemical vapour deposition (CVD) equipment used in industrial diamond production. While jewellery-grade cultured diamonds are excluded, all technical-grade materials used in aerospace, semiconductor fabrication, and precision engineering are now restricted, adding further constraints to industries dependent on high-performance cutting and polishing technologies.

China has also expanded controls to include strategic metals vital to semiconductor, defence, and clean energy sectors, such as gallium, germanium, and antimony. Earlier in 2025, tungsten, indium, bismuth, tellurium, and molybdenum were added to the export control list, extending Beijing’s regulatory reach across materials essential for high-performance alloys, chip production, and renewable energy systems. These metals underpin precision manufacturing and weapons production, amplifying China’s leverage across critical Western industries.

Controls have additionally been extended to high-purity silicon and photovoltaic technologies. While industrial-grade silicon remains exportable, the new rules restrict semiconductor- and solar-grade polysilicon (6N–9N purity) and the technologies used in its manufacture. Exporters must now obtain government permits for the transfer of crystal-growth machinery, CVD systems, and process data related to silicon wafer fabrication. These restrictions target both semiconductor manufacturing and solar panel production, reinforcing China’s dominance in photovoltaic technology and chip-grade material supply.

Beyond raw materials, the export control framework now encompasses downstream manufacturing technologies, equipment, and chemical processes used in refining, magnet production, and battery assembly. Export licence applications from defence contractors, semiconductor producers, and high-technology firms are expected to face delays or denials, introducing new friction into global production networks and heightening uncertainty surrounding supply chain security for critical industries.

Four key components of China's new framework

China’s rare earth export control framework redefines its position as both the world’s dominant supplier and the principal regulator of critical materials. The framework extends beyond individual elements to encompass associated technologies, production systems, and intellectual property, allowing Beijing to assert control over every stage of the rare earth value chain, from extraction and separation to advanced magnet and component manufacturing.

These measures will directly affect defence, semiconductor, renewable energy, and advanced manufacturing sectors across the United States, Europe, Japan, South Korea, and other allied economies. Companies dependent on Chinese-origin rare earths for magnets, sensors, batteries, and precision components now face heightened regulatory exposure, supply instability, and increased operational costs. The impact will cascade through global industries and ultimately reach consumers, raising prices for electric vehicles, electronics, and clean energy technologies, while slowing the pace of the global energy transition and digital innovation.

2) Foreign Direct Product Rule (FDPR) Implementation

MOFCOM Announcement No. 61 introduces a Chinese version of the Foreign Direct Product Rule (FDPR), extending Beijing’s jurisdiction to foreign companies whose products use Chinese-origin rare earth materials or technologies. This measure significantly broadens the reach of China’s export control authority.

Export licences are now required for:

• Products containing 0.1% or more (by value) of Chinese-origin rare earths.

• Items manufactured using Chinese rare earth technologies, regardless of production location.

• Magnets or sputtering target materials derived from Chinese rare earth inputs.

This marks a fundamental shift in global trade governance, embedding Chinese regulatory power into international supply chains and allowing Beijing to influence how strategic materials are sourced, processed, and applied in advanced technologies.

3) Technology Export Controls

The tightening of technology export rules reflects China’s intent to protect industrial expertise and preserve its advantage in materials science and engineering. By restricting the transfer of technical data, designs, and manufacturing methods, Beijing seeks to prevent the diffusion of rare earth processing knowledge abroad.

Under MOFCOM Announcement No. 62, export restrictions now apply to:

• Mining, smelting, and separation technologies for rare earth elements.

• Magnetic material manufacturing techniques.

• Recycling and recovery processes for secondary rare earth resources.

• Production line design, maintenance, and upgrading technologies.

• Technical data, including blueprints, process documentation, and simulation models.

These measures are designed to protect China’s industrial capability and ensure that advanced rare earth technologies remain under domestic control. In doing so, Beijing strengthens its position as the global leader in rare earth processing and magnet production.

4) Equipment and Materials Controls

Through MOFCOM Announcements 55 to 58, China has extended export restrictions to the machinery and materials essential for rare earth and battery production. These include:

• Centrifugal extraction equipment.

• Intelligent impurity removal systems.

• Calcining kilns for rare earth production.

• Superhard material processing systems.

• Lithium battery and artificial graphite anode materials.

These measures broaden the scope of control beyond rare earths, linking the legislation to sectors central to electric vehicles, energy storage, and advanced manufacturing. The policy reinforces Beijing’s command over technologies critical to the energy transition and global industrial competitiveness.

Risks required to achieve Western rare earth resilience

Achieving long-term resilience in the Western rare earth supply chain will require not only coordination and investment, but a deliberate acceptance of strategic risk across economic, environmental, and geopolitical dimensions. The path to independence from Chinese dominance will involve immediate costs but deliver enduring security. Western nations must be prepared to bear short-term economic strain, environmental trade-offs, and political friction in pursuit of long-term sovereignty. The alternative, continued dependence on an adversarial supplier, poses far greater danger to defence readiness, industrial competitiveness, and geopolitical stability.

1. Economic and industrial risk

Rebuilding a rare earth supply chain from mine to magnet demands significant upfront investment in extraction, processing, and refining, typically at higher cost than Chinese production. Western governments will need to absorb near-term inefficiencies through subsidies, loan guarantees, and long-term procurement commitments. Accepting temporary market distortion and elevated input costs is the price of restoring secure access to strategic materials and achieving lasting autonomy.

2. Market and corporate risk

Governments must mobilise private industry to participate in a sector historically dominated by state-backed enterprises. This will expose firms to long-term market uncertainty, where returns rely on consistent policy, predictable demand, and allied coordination. Companies will need to invest ahead of profit, placing confidence in the durability of Western industrial strategy and the strength of public–private cooperation.

3. Environmental and regulatory risk

Rare earth mining and separation are chemically intensive processes with considerable environmental impact. Restoring domestic capacity will require governments to balance environmental integrity with strategic necessity, expediting approvals while maintaining public confidence. Controlled environmental trade-offs are unavoidable but manageable, provided they are accompanied by transparent oversight and a clear national security rationale.

4. Political and alliance management risk

A truly coordinated Western response depends on policy alignment across diverse national agendas, particularly between the United States, the European Union, and the United Kingdom. Shared export controls, technology partnerships, and resource-sharing frameworks will require limited sovereignty concessions and political compromise among allies. Such integration is strategically essential but politically sensitive, especially where domestic industries compete for investment, employment, and market share.

5. Strategic and geopolitical risk

China is unlikely to remain passive. A decisive Western decoupling effort could trigger retaliatory export controls, price manipulation, or diplomatic pressure on resource-rich third countries. Western nations must be prepared for a period of strategic friction and supply volatility as Beijing moves to protect its market share and geopolitical leverage. The challenge is compounded by the fact that the West remains significantly behind in rare earth processing technology, engineering capability, and associated intellectual property. Closing this gap will require sustained innovation, research investment, and the rebuilding of technical expertise that has atrophied over decades of offshoring. Building resilience will require navigating inevitable confrontation, as the alternative is a sustained erosion of industrial capability and strategic autonomy.

Strategic Targeting and Restrictions

The legislation’s focus on the defence and semiconductor industries reflects its deliberate strategic purpose. China is not merely protecting its resources, it is shaping the structure of global technological power.

Defence Sector Prohibitions

By denying access to entities engaged in military or dual-use activities, Beijing is signalling its intent to prevent its resources from supporting adversarial defence programmes. Export licences will be denied for:

• Foreign military users and defence contractors.

• Subsidiaries and affiliates of defence-related enterprises.

• Applications involving military or dual-use technologies.

• Firms listed on China’s export control or watch lists.

These provisions align China’s export controls with national security priorities and restrict the flow of rare earths to defence supply chains viewed as contrary to its interests.

Semiconductor Industry Controls

Semiconductors form the foundation of modern technology and defence capability. China’s export controls now target the most advanced segments of this industry, with heightened scrutiny applied to:

• Products used in 14-nanometre and more advanced logic chips.

• 256-layer and higher memory technologies.

• Semiconductor manufacturing and testing equipment.

• AI research with potential military or dual-use applications.

These controls limit access to high-end materials and equipment that could enhance foreign capabilities, while reinforcing China’s ambition for technological self-sufficiency in advanced chip production.

Operational measures: Contesting coercion and securing stockpiles

The confrontation between China and the West over control of critical materials has evolved into a prolonged contest of economic resilience and strategic endurance. China is now weaponising its dominance in rare earth extraction and processing to influence Western industrial and defence capability, testing the cohesion and preparedness of allied economies. In response, Western resilience must rest on more than investment and coordination; it requires a coherent framework of active measures designed to contest coercion, secure physical supply, and sustain production during crisis.

Governments and industry must act in concert to strengthen deterrence, expand redundancy, and ensure continuity of production across every critical supply chain. This demands a disciplined operational focus built around three mutually reinforcing priorities:

1. Contesting coercion and protecting supply lines to safeguard trade routes and resist economic pressure

• Develop coordinated diplomatic and economic responses that unify allied reactions to export restrictions, price manipulation, or coercive trade practices. Rapid, collective countermeasures reduce vulnerability to economic fragmentation and demonstrate political solidarity.

• Prepare reciprocal export controls and targeted trade measures to raise the cost of coercive behaviour, signalling that any attempt to weaponise supply chains will trigger proportional and sustained responses across allied markets.

• Strengthen maritime and logistical security to protect critical shipments of rare earth materials and components. This includes enhanced naval coordination, secure convoy arrangements for high-value cargo, and the fortification of ports and transshipment hubs deemed essential to the rare earth supply chain.

• Protect critical infrastructure and industrial logistics networks through upgraded physical and cyber defences, advanced cargo tracking, and enhanced counterintelligence cooperation between governments and major logistics operators.

• Engage private-sector partners in supply chain protection through joint monitoring mechanisms, data-sharing agreements, and continuity planning for high-risk shipping routes and strategic inventories.

• Maintain a unified communications doctrine to project allied resolve, deter opportunistic interference, and sustain confidence among industry and investors in the stability of critical material flows.
  
  

2. Building strategic stockpiles and inventory management systems, to guarantee access to critical materials under stress

• Ensure priority allocation protocols to guarantee defence and critical infrastructure continuity during severe shortages, protecting national security and essential industrial operations.

• Establish allied stockpiles of magnet-grade and separation-grade materials to provide emergency coverage for both military and civilian strategic sectors, ensuring the uninterrupted operation of high-value manufacturing during crises.

• Coordinate with major industrial and defence contractors to create parallel corporate stockpiles that maintain production continuity under stress. Leading firms in aerospace, automotive, and technology manufacturing are already advancing this approach, securing long-term rare earth inventories to sustain business-as-usual operations during potential supply shocks.

• Distribute both government and corporate reserves across secure, geographically diverse sites to reduce vulnerability and eliminate single points of failure. Strategic dispersion should extend across allied jurisdictions to guarantee access in times of regional disruption.

• Introduce transparent governance frameworks with defined drawdown triggers, replenishment schedules, and audit requirements to ensure accountability and prevent distortion of commercial markets.

• Finance and sustain stockpiles through public–private mechanisms, including long-term offtake agreements, pre-purchase contracts, and strategic investment guarantees that stabilise both government access and private-sector incentives to expand production capacity.
  
  

3. Expanding surge capacity, recycling, and demand management, to maintain industrial output and adapt to prolonged disruption

• Expand modular and flexible processing capacity capable of rapid activation during crisis. Governments should fund and pre-certify “surge-ready” production lines for magnet manufacturing, separation, and refining to ensure industrial continuity during major supply disruptions. Allied nations must coordinate these facilities to form a distributed emergency network, ensuring output redundancy and mutual support.

• Invest in large-scale recycling and urban mining infrastructure to recover rare earths from end-of-life electronics, vehicles, and industrial waste. Establish circular supply systems that can supply up to one-third of critical material demand during crisis conditions, reducing reliance on new extraction and imports.

• Engage major manufacturers in pre-agreed surge production frameworks. Defence contractors, automotive firms, and clean energy producers should commit to standby production partnerships that enable the rapid scaling of essential component manufacturing when supply chains tighten. These industrial alliances form the operational backbone of Western supply resilience.

• Implement coordinated demand-management frameworks to prioritise allocation between defence, energy, and industrial users during constrained supply. Predefined hierarchy systems should guarantee uninterrupted defence readiness while sustaining critical civilian infrastructure and energy security.

• Support substitution research and material innovation through long-term funding for alternative magnetic alloys, ceramics, and advanced composites. Expanding viable substitutes for non-critical applications will ease strategic demand pressure and extend available reserves in future crises.

Conclusion: Strategic Implications for the UK, EU, and Allied Economies

China’s dominance in the rare earth sector defines the strategic environment of the decade ahead. Its control over extraction, processing, and advanced magnet production grants enduring leverage across global manufacturing, energy, and defence supply chains. This dominance enables Beijing to dictate access, shape pricing, and influence technological progress across every advanced economy. The rare earth export control regime is not a transient trade measure but a deliberate, long-term mechanism of geopolitical influence. It will take years for Western nations to build the refining and magnet production capacity necessary to meaningfully reduce dependence on Chinese supply.

For the United States and allied economies, these developments represent both a strategic warning and a call to sustained industrial mobilisation. The United States remains acutely exposed across its defence and aerospace sectors, where rare earths are indispensable for propulsion systems, precision-guided munitions, radar, and secure communications. This dependency constitutes a systemic vulnerability that extends across NATO and partner nations.

In the short term, these restrictions will likely slow the pace of U.S. defence production expansion, particularly in areas such as advanced munitions, missile guidance systems, and electronic warfare platforms. While the United States possesses the industrial base and capital to recover, the time required to localise the full rare earth supply chain will constrain output growth and complicate efforts to sustain high-volume defence manufacturing. This delay reinforces the urgency of building secure, allied-controlled material pipelines to underpin military readiness and deterrence.

Washington has begun to respond with renewed strategic focus. The U.S. Department of Defense has invested directly in the domestic rare earth supply chain, funding projects to establish a comprehensive “mine-to-magnet” capability and reduce reliance on Chinese processing. The Department has committed $400 million in equity investment to MP Materials, becoming the company’s largest shareholder, and provided an additional $150 million loan to expand domestic separation and refining capacity. These investments underpin the construction of MP Materials’ magnet manufacturing facility in Texas, part of a broader federal effort to re-establish end-to-end U.S. production capability.

In parallel, Apple has entered into a $500 million partnership with MP Materials to purchase U.S.-made magnets from recycled feedstock and co-develop a domestic recycling and processing facility. This alignment between corporate and national objectives reinforces the industrial shift toward strategic self-reliance. The acquisition of Less Common Metals by USA Rare Earth further strengthens allied control over magnet precursor and alloy production, expanding the Western capability base and deepening industrial resilience.

Recycling and closed-loop recovery programs are now emerging as central pillars of Western resilience. The United States, the United Kingdom, and the European Union are funding large-scale initiatives to reclaim rare earths and battery materials from end-of-life electronics, vehicles, and industrial waste. At the same time, allied governments and investors are pursuing new mining and refining opportunities across North America, Australia, Europe, and emerging sites in Greenland, seeking to establish secure, Western-controlled supply chains for rare earth elements. Greenland’s deposits, alongside new research into recovering REEs from coal and coal by-products, represent promising alternative feed sources that could reduce dependence on Chinese supply. However, realising this potential will require substantial investment, environmental safeguards, and sustained political coordination to ensure these new resources translate into resilient industrial capacity.

The Western response must now be deliberate, coordinated, and sustained, driven by continued investment in domestic mining and refining, joint ventures with trusted partners, harmonised export controls, and shared allied infrastructure. Long-term resilience depends on an integrated industrial policy that unites public funding, private innovation, and alliance-based planning. Control over rare earth supply will define the extent of Western geopolitical power and its capacity to preserve technological and economic sovereignty.

Beyond defence and aerospace, the risks now extend across the industrial economy. The automotive, renewable energy, and electronics sectors are competing directly with defence for limited rare earth resources. Electric vehicle motors, wind turbine generators, and high-performance batteries all depend on rare earth magnets and alloys. Supply disruption would raise production costs, delay clean energy deployment, and constrain the expansion of strategic manufacturing bases across North America and Europe. Such pressures will slow industrial growth, undermine investment confidence, and make energy transition resilience harder to achieve across the Western world.

For the European Union, the legislation reinforces the urgency of executing the Critical Raw Materials Act with precision and speed. The EU must convert its strategic intent into operational capability, developing extraction, refining, and recycling capacity within Europe and through partnerships with democratic producers. Member states must cooperate to ensure scale and consistency, supported by investment incentives, technology exchange, and cross-border projects. Europe’s ability to deliver its energy transition and maintain industrial competitiveness depends on achieving strategic independence from Chinese control.

For the United Kingdom, the new export regime exposes a structural weakness in access to critical materials vital to defence, energy security, and advanced manufacturing. Reliance on Chinese-processed inputs leaves key sectors vulnerable to coercion and disruption. The UK must respond decisively: build domestic refining capacity, establish strategic reserves, integrate into allied supply chains, and align policy with the United States, Canada, and Australia. Rare earth security must be treated as a core national security issue, embedded within defence, industrial, and energy strategy.

These developments unfold against the backdrop of the war in Ukraine, which has fundamentally altered the global security landscape and redefined the contest between democratic and authoritarian powers. Russia’s sustained aggression has deepened its economic and technological dependence on China, entrenching a Beijing–Moscow axis that spans resources, energy, and military technology. By tightening control over rare earths, China strengthens its bargaining position with Russia and signals its willingness to leverage industrial supply chains as tools of geopolitical coercion. This alignment increases strategic pressure on NATO and its partners, reinforcing the need for collective resource resilience alongside military support for Ukraine.

Strategic foresight and unity of purpose are now imperative. The United States, the United Kingdom, the European Union, and allied partners must treat rare earth security as a shared mission of industrial defence. This is not a commercial adjustment but a test of long-term sovereignty and strategic endurance. Sustained investment, coordinated technology programmes, surge capacity planning, and coherent political leadership are required to rebuild resilience and rebalance the global system. The objective is clear: to ensure that access to critical materials remains secure, affordable, and aligned with democratic interests, and that the free world retains the industrial and strategic strength to defend them.