Written By: Madeleine Rzad
Rare earth elements (REEs) are becoming increasingly prominent due to their use in clean energy, national security, and consumer electronics, along with other industries. Much of this global demand is supported by China’s strong position in the rare-earth market. Rare earths are not inherently rare, but are found globally. Yet, despite this global presence, the rare earth supply chain becomes notably concentrated, with China dominating the processing stages, accounting for approximately 90% of global processing (International Energy Agency, 2025). China’s near monopoly on REEs allows it to obtain price control, supply chain control, and geopolitical leverage, making many countries that rely on REEs vulnerable to China’s influence. Now, China’s position in the rare earth industry allows it to influence global manufacturing, trade negotiations, and tariffs, subsequently impacting industries that rely on rare earths. Many countries, now acknowledging the risk this presents, are working towards supply chain diversification.
The demand for rare earths is projected to increase as more countries begin to promote clean energy and strengthen national defense. An increase in demand strains the existing supply and increases global dependence on China’s processed products. Attempts to reduce dependence on China are difficult because currently there are limited substitutes for REEs, and high switching costs, both monetary and time investments, for moving away from China’s exports (Baskaran, 2025).
China’s rise to near monopoly status stemmed from fewer labor and environmental regulations (House Select Committee on the CCP, 2024) as well as government influence on export taxes, allowing them to cheaply mine and process rare earths and exercise control over market price (Emont, 2025). China was able to buy foreign REE assets when production abroad appeared to increase; after overwhelming the market with rare earths at a lower price, certain companies found it unprofitable to continue producing, eventually selling some of their assets and mines to China (Emont, 2025). This not only demonstrated China’s market power but also increased it. With imperfect substitutes for rare earths and growing demand, many countries found themselves relying on China for REEs.
China’s recognition of the global importance of REEs led to their vertical integration of the rare earth supply chain; China now mines around 60% of global REEs, separates and processes around 90% of them, and manufactures around 94% of magnets containing REEs used for clean energy, electric vehicles (EVs) among other things (International Energy Agency, 2025).
Occupying a large share of the rare earth supply chain, China doesn’t passively maintain a near-monopoly but actively reinforces its position, which gives it global power and leverage in negotiations. China’s position as the dominant processor of rare earths allows it to implement typical monopolist tactics, such as price control. In 2022, to maintain China’s control over the rare earth market, Beijing increased REE processing by 25% to lower global market prices. Low market price caused foreign producers to limit or even halt production(Emont, 2025). China has effectively gained control over entry into the rare-earth market.
Such control over the rare earth market has allowed China to use its position to influence trade deals and handle disputes. The concentration and vertical integration of REE supply chains in China causes instability for other countries that rely on REEs, including Japan, the US, the UK, and many countries in Europe (IEA, 2025).
This supply chain vulnerability was recently exposed over trade controls and negotiations between the US and China. Back-and-forth trade restrictions and tariffs between the two countries have increased since President Trump took office, and a recent meeting between Trump and Xi Jinping, the President of China, demonstrates China’s negotiating power on the rare-earth front. Negotiations ended with China pausing plans to implement increased export restrictions on rare earths (The White House, 2025). Here, China’s dominance in the rare earth market makes it increasingly relevant to trade negotiations, as many countries do not want to risk losing their supply.
While transitioning to a more diversified global supply of rare earths would provide many nations with supply chain security for vital industries, such a transition is proving increasingly difficult. Japan has made major efforts to reduce its rare earth dependence on China after an incident with them in 2010 that exposed Japan’s supply chain vulnerabilities. As of 2023, Japan gets around 60% of its rare earths from China after significant investment and development, a reduction from the previous 90%, but still over half (Terazawa, 2023).
More recently, Europe has taken steps towards reducing their primary dependence on one nation for rare earths through the construction of a REE processing facility in Estonia, ready for product distribution next year. However, one such facility is not enough for a significant reduction of Europe’s dependence on China. While full domestic reliance is not necessary for increasing stability of the REE supply chain, Europe still has a long way to go before it reaches a level of diversification that will meaningfully reduce supply chain vulnerability (Mackrael, 2025).
Moreover, China’s current near-monopoly still holds power while global efforts are underway to reduce China’s dominance over rare earths. The US and Australia have signed a deal to invest in REE mining and processing in Australia to reduce their reliance on China (Sherman, 2025). Similarly, the UK is working to limit its dependency on China for REEs to 60% or less by 2035 and to increase its domestic capacity (O’Carroll, 2025).
These plans, if successful, will reduce China’s dominance over rare earths and diversify the rare earth market. Such plans require significant coordination and investment and must comply with the country’s environmental and labor requirements. Additionally, as China still holds the majority of REE processing power, it can still greatly influence prices. Should this happen, certain countries may be forced to rework plans or rely on consumer purchasing power, entrusting consumers to support local economies and supply chains at slightly higher prices. This is similar to how EU producers are hoping consumers will pay premiums for domestic products “to avoid dealing with China’s restrictions” (Mackrael, 2025). Still, plans are underway and can yield success, as evidenced by Japan’s reduced dependence.
A global monopoly, or near-monopoly, over a crucial resource can lead to supply chain insecurities. One way to reduce dependence on any one nation is to diversify the supply chain and increase local production; however, as seen here, doing so takes time, joint nation-to-nation negotiations, investment, and trust in consumer purchasing power. Countries may also look towards other common economic concepts to reduce dependence like emphasizing REE recycling to create a circular economy or investigating new potential substitutes to use less rare earths, to name a few. It’s also relevant to mention that each country’s goals for REE supply will look different, and generalized global plans might not work for certain nations.
References
Baskaran, G., & Schwartz, M. (2025, July 28). Developing rare earth processing hubs: An analytical approach. CSIS. https://www.csis.org/analysis/developing-rare-earth-processing-hubs-analytical-approach
Craig Mayhew and Robert Simmon. (2006, October 21). World Night Lights Map [Photo]. Wikimedia Commons. https://commons.wikimedia.org/wiki/File:World_Night_Lights_Map.jpg
Emont, J. (2025, October 20). How China took over the world’s rare-earths industry. The Wall Street Journal. https://www.wsj.com/economy/trade/how-china-took-over-the-worlds-rare-earths-industry-fb668839
House Select Committee on the Strategic Competition Between the United States and the Chinese Communist Party. (2024, July 23). Congressman Wittman opening remarks – Critical Minerals Policy Working Group: Roundtable 3 (Forced Labor and Sustainability in Mining). https://selectcommitteeontheccp.house.gov/sites/evo-subsites/selectcommitteeontheccp.house.gov/files/evo-media-document/7.23.24%20Wittman%20CMPWG%20Remarks.pdf
International Energy Agency. (2025, October 23). With new export controls on critical minerals, supply-concentration risks become reality. IEA. https://www.iea.org/commentaries/with-new-export-controls-on-critical-minerals-supply-concentration-risks-become-reality
Mackrael, K. (2025, November 16). New Rare-Earths Plant in Europe Shows How Tough Breaking China’s Grip Will Be. The Wall Street Journal. https://www.wsj.com/world/europe/a-new-rare-earths-plant-in-europe-shows-how-tough-breaking-chinas-grip-will-be-1c19f747
O’Carroll, L. (2025, November 23). UK launches critical minerals strategy to reduce dependency on China. The Guardian. https://www.theguardian.com/world/2025/nov/23/uk-launches-critical-minerals-strategy-to-reduce-dependency-on-china
Sherman, N. (2025, October 20). US and Australia sign rare-earths deal to counter China’s dominance. BBC News. https://www.bbc.com/news/articles/cly9kvrdk2xo
Terazawa, T. (2023, October 13). How Japan solved its rare earth minerals dependency issue. World Economic Forum. https://www.weforum.org/stories/2023/10/japan-rare-earth-minerals/
The White House. (2025, November 1). Fact Sheet: President Donald J. Trump strikes deal on economic and trade relations with China. https://www.whitehouse.gov/fact-sheets/2025/11/fact-sheet-president-donald-j-trump-strikes-deal-on-economic-and-trade-relations-with-china/