Rare Earths: How China’s Export Controls Impact Tech and Defense Investments

China’s dominance in the rare earth element (REE) market has become a focal point of global concern, particularly regarding its impact on technology and defense investments. As of April 4, 2025, China has imposed export controls on specific medium and heavy rare earth materials, citing national security and non-proliferation obligations. This move has sent ripples through various sectors, raising questions about supply chain vulnerabilities and the future of technological advancement. With China controlling approximately 60% of rare earth mining operations and 90% of processing capacity, these export controls have the potential to significantly reshape the global landscape.

What are Rare Earth Elements?

Rare earth elements (REEs) are a set of seventeen metallic elements that include the fifteen lanthanides on the periodic table, plus scandium and yttrium. Despite being labeled as “rare,” these elements are relatively abundant in the Earth’s crust. However, they are rarely found in economically viable concentrations, making their extraction and refinement a complex and costly process.

REEs possess unique magnetic, phosphorescent, and catalytic properties, making them essential components in a wide range of high-tech devices and applications. These include:

Electronics: Smartphones, digital cameras, computer hard disks, flat-screen televisions, and electronic displays.
Clean Energy: Wind turbines, electric vehicles, and solar panels.
Defense: Missile systems, radar technologies, night vision devices, and communication equipment.

China’s Export Controls: A Strategic Move

China’s recent export controls on rare earth elements are not an outright ban but rather a restriction requiring companies to obtain special export licenses. This move is widely seen as a strategic response to tariffs imposed by the United States and growing trade tensions between the two countries. The restrictions apply to seven medium and heavy rare earths: samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium.

These export controls have several potential implications:

Supply Disruptions: The implementation of the licensing system may cause a pause in exports as companies await approval from the Chinese government.
Price Increases: The restrictions could lead to upward pressure on prices due to potential supply shortages and increased regulatory uncertainty. Some analysts anticipate prices could double or even increase by 500% in the near future.
Geopolitical Tensions: The export controls could further escalate trade tensions between China and other countries, leading to retaliatory measures and increased uncertainty in the global market.

Impact on Tech and Defense Industries

The tech and defense industries are particularly vulnerable to China’s export controls due to their heavy reliance on rare earth elements.

Technology Industry:

Electronics Manufacturing: REEs are used in various components of electronic devices, including magnets, displays, and batteries. Supply disruptions could lead to increased production costs and delays in manufacturing.
Renewable Energy: REEs are essential for the production of wind turbines and electric vehicles, which are critical for the transition to a green economy. Export controls could hinder the growth of these industries and slow down efforts to combat climate change.

Defense Industry:

Weapon Systems: REEs are used in a wide range of defense technologies, including fighter jets, submarines, missiles, radar systems, and unmanned aerial vehicles. Restrictions on rare earth exports could significantly impact the U.S. defense industry and undermine its ability to maintain a technological edge.
Military Capabilities: China’s export controls could enable it to strengthen its military capabilities faster than the United States, potentially altering the balance of power.

Investing in Alternatives and Diversification

In light of China’s export controls, there is a growing need for companies and governments to invest in alternative sources of rare earth elements and diversify their supply chains. This includes:

Developing Domestic Mining and Processing Capabilities: The United States and other countries are taking steps to develop their own rare earth mining and processing facilities to reduce their reliance on China.
Exploring Alternative Materials: Research is underway to find alternative materials that can replace rare earth elements in various applications. For example, companies are developing magnets made from iron and nickel that can perform as well as neodymium magnets.
Promoting Recycling and Circular Economy: Efforts to recycle rare earth elements from end-of-life products can help to reduce demand for newly mined materials and create a more sustainable supply chain.
International Cooperation: Countries can work together to develop alternative supply chains and promote responsible mining practices.

Navigating the Challenges

China’s export controls on rare earth elements present significant challenges for the tech and defense industries. However, by investing in alternatives, diversifying supply chains, and promoting international cooperation, companies and governments can mitigate the risks and ensure a more secure and sustainable future.

Advice for those in the market:

Begin conversations with suppliers to understand how this policy may impact lead times and pricing.
Consider stockpiling or identifying alternate sources where feasible.
Monitor further guidance from Chinese authorities and watch for retaliatory or responsive policy measures from other governments.
If applicable, revisit internal compliance protocols to ensure awareness of changes in dual-use export controls and licensing processes.

The situation is dynamic, and businesses must stay informed and adaptable to navigate the evolving landscape of rare earth element supply chains.