China's Rare Earth Dominance

In 2023, China produced 240,000 metric tons of rare earth oxides, securing a commanding 69% of global production, a dominance that shapes industries from electric vehicles to missile systems. This unparalleled control, highlighted by the US-China trade talks in London on June 9, 2025, positions China as a linchpin in global supply chains, wielding its mineral wealth as both an economic engine and a geopolitical tool. The talks, driven by a decline in rare earth magnet shipments critical to US industries, underscore the risks of global reliance on China’s supply chain, which supplies 85% of the world’s rare earth magnets. China’s grip, built on decades of strategic investment and policy, offers immense leverage but also exposes vulnerabilities that nations like the US and Australia are scrambling to address. The outcome of these talks will likely yield short-term concessions but fall short of dismantling China’s structural dominance, leaving global markets in a precarious balance.

China’s rare earth dominance began in the 1980s with state-led investments that transformed its mining sector into a global powerhouse. The Bayan Obo mine in Inner Mongolia, the world’s largest rare earth deposit, produced over 70% of China’s 240,000 metric tons of rare earth oxides in 2023, dwarfing the United States’ 43,000 metric tons and Australia’s 18,000 metric tons. This geological advantage is amplified by infrastructure development, with state-owned enterprises like China Northern Rare Earth Group optimizing extraction through advanced technologies. Low labor costs, averaging $1.50 per hour compared to $20 in the US, and historically relaxed environmental standards have kept production costs low, enabling China to supply rare earths at prices 30-40% below competitors.

China’s control over rare earth refining is even more pronounced, processing 89% of the world’s rare earths into oxides and magnets in 2023. Facilities in Jiangsu and Guangdong leverage decades of investment in chemical processing, producing high-purity materials for industries like electronics, where rare earths constitute 20% of smartphone component costs, and defense, where they are critical for 90% of US missile guidance systems. China’s refining capacity, estimated at 220,000 tons annually, far exceeds the US’s 12,000 tons and Japan’s 3,000 tons, driven by technological expertise and government subsidies covering 25% of operational costs. This dominance in refining rare earth magnets, with an 85% global market share, makes China indispensable to clean energy sectors, where magnets account for 30% of electric vehicle motor costs.

China’s distribution networks, led by state-controlled giants like China Minmetals, control 85% of global rare earth magnet exports, valued at $10 billion in 2023. These networks prioritize domestic industries, with 60% of China’s rare earth output consumed internally under the “Made in China 2025” initiative, which targets 70% self-sufficiency in high-tech manufacturing by 2030. Export quotas and licenses allow China to manipulate global prices, as seen in 2010 when restrictions cut exports by 40%, spiking prices by 600%. The recent approval of select export applications on June 7, 2025, signals a strategic easing, likely to stabilize trade relations amid the London talks, but retains China’s ability to throttle supply at will.

China’s rare earth dominance is a deliberate geopolitical tool, underpinned by policies like export quotas and subsidies covering 30% of mining costs. The “Made in China 2025” initiative ensures domestic industries, producing 50% of global electric vehicles, have priority access to rare earths, strengthening China’s $1.2 trillion high-tech sector. In trade disputes, rare earths serve as leverage: the June 2025 London talks, prompted by a 20% drop in US-bound magnet shipments, saw China link export stability to US concessions on AI chip restrictions, affecting $500 million in Huawei sales. President Trump’s threat to restore tariffs to 100% if no deal is reached underscores the stakes, with rare earths central to negotiations.

China’s dominance carries risks. Its reliance on rare earth exports, generating $12 billion in 2023, makes it vulnerable to global diversification efforts. Environmental pressures, with 70% of mining sites linked to pollution, could force stricter regulations, potentially cutting output by 15% by 2030. The June 2025 talks, triggered by a 20% export decline, highlight how China’s restrictions can backfire, spurring diplomatic pushback and US tariffs. China’s complaints about US restrictions on $1 billion in tech exports reflect a mutual vulnerability, complicating trade dynamics.

The June 2025 London talks will likely result in a short-term agreement to restore rare earth magnet shipments to the US, potentially stabilizing exports at 2024 levels of 40,000 tons. China’s approval of select exports on June 7 suggests a willingness to compromise to avoid tariff hikes, while the US, facing a $2 billion defense sector shortfall without these materials, has incentive to de-escalate. However, the talks will not address China’s structural dominance, as refining and distribution networks remain unchallenged. Long-term, the US and allies will push for diversification, but China’s cost advantages and 89% refining share ensure its grip for at least a decade. The outcome will be a fragile truce, with China retaining leverage unless global investments triple by 2030.

China’s rare earth dominance will continue to shape global trade, with its 69% production share and 85% magnet market control dictating terms for industries worth $1 trillion globally. The June 2025 talks highlight the urgency of diversifying supply chains, but progress will be slow—global non-Chinese production is projected to reach only 80,000 tons by 2030, covering 25% of demand. Nations like the US should accelerate investments, targeting $10 billion by 2028 to boost domestic refining to 30,000 tons. Businesses must secure contracts with emerging suppliers like Lynas, despite 20% higher costs, to hedge against disruptions. Policymakers should fund recycling, potentially recovering 10,000 tons annually by 2035, and explore synthetic alternatives reducing rare earth use by 15%.