By: Ashwini Thakre and Piyush Verma
The global rare earth sector entered a new era in 2025, when Beijing imposed sweeping export controls on the critical minerals essential to the world’s technology, defense, and clean energy systems. China already processes over 70% of global rare earths elements; this move translated market dominance into geopolitical leverage. What initially appeared to be a targeted trade measure quickly evolved into one of the most consequential industrial shocks of the decade, exposing the vulnerability of a number of sectors built on high-performance permanent magnets, from electric vehicles and wind turbines to semiconductors and precision-guided defense systems.
The first restrictions arrived in April 2025, when China’s Ministry of Commerce mandated national-security-based licenses for exports of seven elements: samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. Exporters halted shipments overnight as they awaited approvals. In October, the scope was expanded to include five additional heavy rare earth elements – holmium, erbium, thulium, europium, and ytterbium – crucial for downstream alloys, magnet materials, and certain manufacturing equipment. The new rules meant that any product containing Chinese rare earths or produced using Chinese processing technology could fall under Beijing’s discretionary licensing authority. The stated rationale was national security and interest and fulfillment of international obligation, but the geopolitical implications of this move were unmistakable.
The impact was immediate and severe. Chinese rare earth magnet exports fell by about three‑quarters in the two months after the new controls took effect. Automotive and renewable energy manufacturers scrambled for alternatives. Several European suppliers temporarily suspended production. Japanese automakers slowed assembly lines, while defense and wind turbine manufacturers also faced acute shortages. Restriction on export of dysprosium and terbium, vital elements for heat-resistant magnets, became emblematic of a deeper structural fragility, which many think tanks and policy makers had long warned about but never confronted so viscerally. Through seemingly bureaucratic licensing delays, Beijing acquired the ability to influence global production schedules, unsettle pricing norms, and subtly shape the industrial decisions of competing economies.
For Washington and its allies and partners, the episode became a moment of reckoning and acceleration. The United States, which had relied on China for more than 80% of its rare earth imports, shifted from passive concern to a coordinated industrial strategy. The Department of Defense finalized a $400 million partnership with MP Materials, the country’s only integrated miner–processor, establishing a price floor for neodymium and praseodymium to ensure predictable economics for domestic magnet production. Apple committed $500 million to source magnets manufactured in Texas, aligning corporate procurement with national strategic priorities. These decisions signaled a decisive shift from passive subsidies to active market-shaping interventions.
Simultaneously, the United States began rebuilding the long missing “middle stream” of the supply chain. Ucore Rare Metals launched construction of a heavy rare earth separation facility in Louisiana with federal backing. Energy Fuels in Utah produced its first domestic sample of dysprosium oxide, targeting commercial scale by 2026. Downstream, Noveon Magnetics in Texas expanded manufacturing capacity under multi-year agreements with General Motors and ABB. These efforts collectively mark the re-emergence of a U.S. mine-to-magnet ecosystem that disappeared decades ago.
Washington also leaned heavily on “friend-shoring.” Australia consolidated its role as the Indo-Pacific’s critical minerals hub, with Iluka’s Eneabba refinery and Arafura’s Nolans project expected to deliver roughly 23,000 tons of refined oxides annually by 2028. Lynas Rare Earths, the only major non-Chinese producer deepened its partnership with Noveon to ensure non-Chinese feedstock for U.S. magnets. Japan and South Korea expanded their own processing and magnet-manufacturing footprints, integrating more tightly into U.S. and Australian supply chains. The Quad’s Critical Minerals Initiative helped anchor these efforts within a broader diplomatic and security framework, while also opening new avenues for cooperation with India, which is working to scale rare earth exploration, processing capability, and downstream technology partnerships as part of its broader clean-technology strategy.
Despite these movements in sector, the challenges remain significant. The true bottleneck is not mining capacity but midstream processing — refining, separation, metallization, and magnet fabrication. Without this infrastructure, newly mined material will continue to be shipped to China for processing, perpetuating dependency. Current policies such as price supports, equity investments, long-term offtake agreements seek to narrow this gap, but scaling requires overcoming high costs, complex permitting regimes, and entrenched technological advantages held by Chinese companies.
Even so, momentum is real. If planned projects reach scale by 2028, the United States, its allies, and partners could meet a significant share of U.S. magnet-grade requirements from non-Chinese sources. Complete independence is unlikely in the near term, especially for heavy rare earth elements, but the emergence of a resilient “China-light” ecosystem is now getting shaped, capable of weathering prolonged restrictions.
Ironically, China’s diplomatic control over sector may become the very trigger that unwinds its dominance. By weaponizing concentration, Beijing accelerated diversification efforts that many democracies had treated as optional. The shock exposed the liabilities of a system built on single-country dependence and encouraged a coordinated wave of investment across the United States, Europe, Japan, South Korea, and Australia. The strategic decisions in the sector are now converging around a shared objective: building transparent, resilient, and strategically autonomous supply chains for the minerals that underpin modern economies.
A decade from now, when analysts look back on the events of 2025, this year may be remembered not only as a moment of coercive statecraft, but also as a turning point for the global rare earth economy and its pathway toward diversification.
Ashwini Thakre is a Consultant with the World Bank Group and Piyush Verma is Senior Fellow for the Energy & Climate Program at ORF America.