Geopolitical Leverage and China's Rare Earth Export Controls: Implications for Global Supply Chains and Defense Technology

China's 2025 Export Controls: A Strategic Escalation

China's October 2025 export restrictions marked a dramatic escalation. Under Ministry of Commerce Notice 2025 No. 61, licensing requirements were imposed not only on raw rare-earth materials but also on foreign-made products containing Chinese-origin materials or technologies, even at a de minimis threshold of 0.1%. This extraterritorial reach effectively extended China's control beyond its borders, targeting downstream industries in the U.S., EU, and beyond. The restrictions included bans on exporting five rare earth elements (holmium, erbium, thulium, europium, and ytterbium) and technologies critical for processing.

These measures were framed as a response to U.S. tariffs and national security concerns but also served to accelerate China's broader strategy of consolidating control over midstream and downstream supply chains. By 2025, China already dominated 60% of global rare-earth mining and nearly all high-performance magnet production. The October controls, however, introduced a new dimension: they forced global manufacturers to either comply with stringent documentation requirements (including end-user and application disclosures) or face supply chain paralysis.

Supply Chain Disruptions and Industrial Vulnerabilities

The immediate impact was severe. Rare-earth magnet exports from China plummeted, disrupting industries reliant on these materials. In the U.S., defense systems such as F-35 fighter jets, Tomahawk missiles, and Virginia-class submarines faced critical shortages of samarium-cobalt magnets, essential for their advanced capabilities. Similarly, the EU, where over 80% of large firms depend on Chinese rare-earth inputs, saw prices surge to six times those in China, straining sectors from electric vehicles to wind turbine manufacturing.

China's lithium-ion battery supply chain controls further compounded the crisis. By restricting materials, technologies, and equipment used in battery production, China tightened its grip on a sector where it already holds over 80% of global production capacity. This has left the U.S. and EU scrambling to develop alternatives, with mixed success. While the U.S. has invested in domestic firms like MP Materials to boost processing and magnet production, these efforts remain in early stages. The EU's Critical Raw Materials (CRMs) Act and European Raw Materials Alliance aim to diversify sources, but their timelines for implementation lag behind the urgency of current disruptions.

Defense Technology: A Frontline of Vulnerability

Defense systems are particularly exposed to China's export controls. Samarium-cobalt magnets, critical for high-temperature stability in military applications, are now subject to stringent licensing. For example, Raytheon's Tomahawk missiles and Lockheed Martin's F-35s require these materials, yet China's "validated end-user" system-prioritizing civilian over military shipments-threatens to block access entirely. This mirrors the U.S. export control framework, underscoring the reciprocal nature of strategic competition.

The U.S. Department of Defense has attempted to mitigate risks by stockpiling rare earths and forming partnerships with allies like Australia and Kazakhstan. However, these measures are stopgaps. China's control over refining and processing remains a bottleneck, as the U.S. lacks the infrastructure to scale domestic production. Similarly, the EU's defense industry has warned that its reliance on Chinese rare earths could undermine readiness for hybrid and cyber conflicts.

Geopolitical Leverage and the Path Forward

China's export controls are not merely economic tools but instruments of geopolitical leverage. By framing restrictions as temporary, Beijing has created a climate of uncertainty, compelling nations to invest in alternatives while retaining the option to re-escalate. The U.S. and EU have responded with tariffs and supply chain diversification initiatives, but these efforts face logistical and financial hurdles. For instance, the U.S. is weeks away from a rare-earth crisis, according to defense analysts, despite recent investments.