Global Rare Earth Supply Chains: G-7 Policy Alignment and the Challenge to China's Dominance

The global rare earth supply chain has become a focal point of geopolitical and economic strategy, as nations grapple with China's near-monopoly over critical materials. China's recent export restrictions, announced in October 2025, have intensified concerns about supply chain vulnerabilities, prompting the G-7 to accelerate coordinated efforts to diversify sources and strengthen resilience. This analysis examines the evolving dynamics of the rare earth market, the G-7's policy responses, and the implications for investors navigating a rapidly shifting landscape.

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China's Strategic Dominance: A Structural Challenge

China's control over rare earth elements (REEs) remains unparalleled. According to a Discovery Alert summary of Reuters reporting, the country processes approximately 90% of global rare earths and dominates over 60% of lithium and cobalt refining. In October 2025, Beijing expanded its export restrictions to include five rare earth elements-samarium, gadolinium, lutetium, europium, and ytterbium-and introduced stringent licensing requirements for products containing even trace amounts of these materials, according to an SFA Oxford analysis. These measures, coupled with a new compliance mechanism requiring detailed supply chain traceability, have created significant operational hurdles for global manufacturers, as Taylor Wessing notes.

China's dominance is not merely quantitative but also strategic. As stated by Bloomberg, the country's control over downstream processing and magnet production allows it to act as a "price-setter" in critical sectors such as semiconductors, electric vehicles (EVs), and renewable energy. For instance, a single 3MW wind turbine requires approximately 600kg of rare earth permanent magnets, underscoring the material's role in the green transition, as noted in a Discovery Alert analysis.

G-7 Policy Alignment: A Coordinated but Constrained Response

The G-7's response to China's export curbs has focused on three pillars: diversification of supply sources, harmonization of technical standards, and investment in alternative processing capabilities. At the June 2025 G-7 Summit, leaders launched a Critical Minerals Action Plan with five pillars, including embedding ESG standards, mobilizing investment in processing, and promoting recycling and substitution, according to m-mtoday. The European Union, for example, is accelerating the development of its European Raw Materials Facility to reduce reliance on Chinese processing (as reported above).

However, the G-7's efforts face significant challenges. While member states have pledged around $13 billion to critical mineral initiatives, this pales in comparison to the estimated $500 billion to $2 trillion required to meet future demand, per a Rare Earth Exchanges analysis. Moreover, the lack of binding commitments and enforcement mechanisms limits the effectiveness of these policies. As the Economic Times observes, the G-7's strategy relies heavily on voluntary cooperation and market incentives, which may not be sufficient to counter China's structural advantages.

Investment Implications: Opportunities and Risks

For investors, the rare earth sector presents both opportunities and risks. The G-7's push for diversification has spurred investment in alternative supply chains. Companies like Lynas Rare Earths in Australia and MP Materials in the U.S. are expanding production, though they face challenges in developing heavy rare earth processing capabilities, according to a Rare Earth Exchanges report. Additionally, recycling technologies and substitution strategies are gaining traction, with the EU and Japan investing in innovation to reduce dependency on primary materials, as Mining Technology reports.

However, the geopolitical tensions between China and the G-7 introduce volatility. The U.S. has imposed a 130% tariff on Chinese goods, while China's export controls have caused production delays for European and Asian manufacturers (see the SFA Oxford analysis cited above). Investors must also consider the long-term sustainability of G-7 initiatives, given the vast funding gap and the time required to develop new infrastructure.

Conclusion: A Delicate Balance

The G-7's alignment on rare earth supply chains reflects a recognition of the strategic importance of these materials in the 21st-century economy. While China's dominance remains formidable, the G-7's coordinated efforts-though constrained by financial and political limitations-signal a shift toward a more diversified and resilient global supply chain. For investors, the key lies in balancing exposure to emerging opportunities in alternative production and recycling with caution regarding geopolitical risks and market volatility.