Rare-Earth Power Plays: How China’s Weapon Could Boomerang Back

 

China’s chokehold on rare earths may look like power, but it’s a boomerang—every squeeze fuels global innovation, speeds supply diversification, and chips away at Beijing’s long-term economic leverage.

In April, China slammed its export gates on rare earths, sending shockwaves through industries and governments from Tokyo to Washington. It wasn’t just a supply cut—it was a stranglehold on the magnets that keep the modern world turning. With more than 90% of the global refined supply in its grip, Beijing’s blockade hit everything from the motors in vacuum cleaners to the engines of electric cars, and from smartphones to fighter jets. The market’s pulse quickened, and panic rippled across production lines. Some carmakers hit the brakes on manufacturing, while Ursula von der Leyen, head of the European Commission, roared against China’s “dominance” and “blackmail.” The message was clear—China had turned a niche mineral market into a geopolitical pressure point.

At first, Xi Jinping’s gambit seemed like a masterstroke. The rare-earth spigot was turned back on, but not before it wrung concessions from rivals. America’s president eased controls on certain Nvidia chip sales and delayed a sharp import duty hike. On August 11, Washington and Beijing extended their trade truce, with von der Leyen having already traveled to Beijing in July, cap in hand, to plead for looser restrictions. On the surface, China’s rare-earth squeeze looked like a checkmate move. Yet beneath the power play lies a flaw big enough to crack the very weapon Xi wields. Every time Beijing tightens its grip, it sparks a chain reaction—one that could loosen its dominance over time.

China’s latest move is not a shot in the dark. Xi has refined the art of weaponizing trade. Back in 2010, after a political spat, China briefly halted rare-earth exports to Japan. In 2020, it turned up the economic heat on Australia, slapping tariffs on Shiraz wine and grass-fed beef. Now, the game has shifted to a licensing system launched in December, covering over 700 goods—including manufacturing equipment and critical minerals. Each export is tracked to its final destination, with officials holding the power to revoke licenses at will. The tactic is a scalpel, not a sledgehammer—precisely cutting off supplies to targeted sectors while letting other flows resume. Even as rare-earth exports trickle back into the market, sales to Western armsmakers remain firmly choked.

Xi’s goal is no mystery. He wants to “indigenise” China’s supply chains so the country never finds itself begging for critical inputs. America’s ban on advanced chip exports to China only sharpened this ambition. The plan is twofold: shield China from dependency while making other countries dependent on Chinese supply lines. Xi himself said in April 2020 that foreign reliance on China could serve as a “deterrent” to those who might “artificially cut off supply.” In theory, the more the world needs China’s minerals, the more it must tiptoe around Beijing.

But here’s the catch—every squeeze sends competitors scrambling to break free. The source of China’s dominance is not magical geology or unbeatable refining technology. Rare earths are not rare in the literal sense; less than half of known reserves are in China. The real advantage lies in China’s willingness to bear the environmental costs of refining and to operate at a massive scale that drives costs down. The refining process is dirty and tedious, but far from the high-tech wizardry of advanced chipmaking. In fact, until the 1980s, the United States was the world’s top supplier. By turning rare earths into a political weapon, Beijing risks reminding the world it can live without them.

History is already proving the point. After the 2010 rare-earth spat, Japan invested heavily in alternative mines and built stockpiles. Its dependence on Chinese supply dropped from 90% to 60%. Earlier this year, the Pentagon bought into MP Materials, a California mining company that inked a deal with Apple. Around the globe, 22 new mining projects are scheduled to be operating by 2030. Geoeconomic theory says the numbers don’t have to drop much to cause damage to China’s influence. A cut from 90% to 80% might look small, but it would effectively double the capacity of non-Chinese suppliers, giving buyers far more room to maneuver.

Still, breaking China’s grip won’t happen overnight. Governments looking to speed things up can take several steps—secure military supply chains, cut the red tape that makes U.S. mining permits drag on for a decade, revisit rigid environmental rules, and lower trade barriers to help competitors scale up. Yet stockpiling and protectionism are not the only answers. Sometimes, necessity is the mother of invention—and shortages become the soil where innovation grows fastest. America’s chip export bans didn’t just slow China; they pushed Chinese firms like Huawei and DeepSeek to create new methods. In 2022, a cobalt shortage eased in months as electric vehicle makers learned to do without the metal altogether.

That same story is now playing out with rare earths. Across the West, startups are racing to develop recycling systems for these minerals and to design magnets and motors that need none at all. BMW and Renault are already selling electric vehicles that bypass rare earths completely, and more automakers could join them. Yes, China’s restrictions will cause disruption in the short run, forcing companies to retool production lines. But in the long run, those same restrictions are the seeds of China’s own loss of leverage.

The warning is as old as trade itself—turn a resource into a weapon, and the recoil might be worse than the shot. China may see rare earths as its golden ticket, but the more it plays the card, the more it teaches the world to stop needing the deck. In trying to lock the market in its favor, Beijing could be digging the mine for its own influence. Every twist of its economic vise is also a turn of the screwdriver in the hands of global competitors building a way out. The grip that feels unbreakable today may be the one that slips tomorrow—and when it does, China will have learned that the sharpest blade can cut both ways.