U.S. policymakers and analysts have raised concerns about China’s recent export restrictions on heavy rare earth elements (REEs), warning that they could seriously disrupt the U.S. economy by cutting off access to materials essential for high-performance magnets, semiconductors and defense systems. While these restrictions will undoubtedly impact American businesses, their ripple effects could potentially extend far beyond the U.S and reshape the geopolitical landscape and supply chains and potentially slowing production patterns.
According to the U.S. Geological Survey report of 2024, countries with large, rare-earths resources beyond China include Brazil, India, Australia, Russia and Vietnam. While these countries do not refine what they produce but export to China for refining, the global trade standoff may open new and unexpected opportunities for them, if they are strategic to seize them.
Interestingly, Brazil, India and Vietnam have also been hit by Donald Trump’s tariffs and they have something America desperately needs, and could leverage their REE resources to negotiate tariff concessions from Washington. That is beside the point that currently the US does not have capacity to refine those rare earths. Consequently, we may see a “minerals-for-market-access” arrangement emerging, where rare earths become bargaining chip in the broader trade negotiations.
Already in July 2024, United States’ Zoetic Global and South Korea’s Trident Global Holdings had plans to establish a joint venture to co-develop premium rare earth mines in Vietnam, ensuring access to the critical elements for many companies. Further, Dong Pao rare earth deposits in Vietnam have attracted significant western interest.
Thus, as China restricts its exports of REEs to the US, deeper questions emerge: what could be the potential impact on production for major exporters of rare earth to China? Could China’s domestic consumption of REEs meet its production and refining capacity or they need a new markets for exports? This is crucial because if China stops selling to one of its major buyer, the U.S., there could be less appetite from Chinese companies to import more rare earth minerals. In simple economic terms, when demand drops, supply contracts.
Without a strong market for its processed REEs, especially from high-volume importers like the U.S., China may cut back on its imports of raw materials—leaving its larger supplier countries vulnerable to sudden economic shocks.
Despite their name, rare earth elements like samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium are actually not that rare—they’re relatively abundant and found in many countries, as shown below. The real challenge lies in processing them.
Currently, China controls over 85% of the world’s refining and processing capacity for REEs—and that’s where its power lies. China’s dominance is not just industrial; it’s geostrategic. By restricting REE exports, Beijing wields a bludgeon that is potentially big enough to force U.S. President Donald Trump to reconsider his tariff agenda.
For only large producers of rare earths dependent on revenue from export of raw materials including unprocessed REE, the exports restrictions could result in reduced production, revenue losses impeding their domestic resource mobilization due to reduced demand and production. However, these REE are needed by other countries including the U.S. and producer countries may need to start exploring potential buyers outside China.
Furthermore, prospective REE mining projects in producer countries may face delays or even cancellation if offtake agreements with Chinese refineries fall through. In recent years, several new projects have come online—such as Serra Verde in Brazil, which began production in early 2024.
Without stable buyers, mining companies involved in these ventures may be forced to stockpile their output and adopt a wait-and-see approach before exporting their ore.
The Bottleneck, the U.S. Can’t Escape
Some argue the U.S. can simply shift its supply chains to countries like Australia or India to meet demand. While these countries do have mining capacity, they lack China’s scale, speed, and dominance in processing. Building a domestic refining and processing ecosystem in the U.S. requires not only massive capital investment but also advanced technical skills, specialized technology, and careful environmental planning.
Also, the United States only has one operational rare earth mine, in Mountain Pass, Calif., whose output is very minimal, albeit the Department of Defense set a goal to develop a complete mine-to-magnet REE supply chain that can meet all U.S. defense needs by 2027 in its 2024 National Defense Industrial Strategy. Still, estimates suggest it could take a decade or more for the U.S. and its allies to establish REE supply chains that can meaningfully compete with China’s. In the meantime, the world remains reliant on China not only for refined REEs but for control over nearly the entire value chain, from extraction to end-product.
But for major producers that export to China, there are new opportunities to be seized by engaging with the U.S. and use their resource leverage to push for tariff reductions. Again these countries must begin to rethink their role in the supply chain and explore ways to attracting investments in refining these minerals, as the U.S. is increasing trying to diversify its partners.
