The Impact of US-China Rare Earths Tensions on Emerging Markets: Strategic Diversification in Critical Minerals Supply Chains

The rare earth elements (REEs) supply chain has become a geopolitical flashpoint in 2025, as China's tightening export controls and strategic dominance over refining and processing technologies reshape global industrial dynamics. With China controlling over 90% of global rare earth refining capacity and 63% of mine output, an EtEdge analysis says the U.S., European Union, and emerging markets face acute vulnerabilities in sectors ranging from electric vehicles (EVs) to defense systems. For emerging economies, the stakes are particularly high: China's export restrictions on heavy rare earth elements like dysprosium and terbium have caused prices to surge by over 300% in Europe, according to a Discovery Alert report, while U.S. rare earth shipments from China plummeted by 93% in 2025, per a MarketMinute report. This crisis has accelerated efforts to diversify supply chains, with Brazil, South Africa, and India emerging as pivotal players in the global race for resource independence.

China's Strategic Leverage and Global Supply Chain Vulnerabilities

China's dominance in the rare earth sector is not merely a function of its vast reserves but also its control over downstream processing and advanced technologies. By expanding export restrictions to include refining equipment, superhard materials, and lithium-battery inputs, the EtEdge analysis argues Beijing has effectively weaponized its supply chain position. For example, European automakers, already depleted of reserve stocks, now face production halts as rare earth elements are critical for EV motors and hybrid vehicle components, a trend highlighted in the MarketMinute report. Similarly, India's manufacturers reportedly have only four weeks of rare earth magnet reserves, forcing urgent policy interventions like the National Critical Mineral Stockpile (NCMS) to buffer against supply shocks, according to a Fortune India analysis.

The U.S. and EU have responded with initiatives to build domestic refining and magnet production, but progress remains slow. Developing alternative supply chains requires years of investment and technological development, as rare earth processing involves complex, environmentally sensitive steps, noted in a TradeCloud analysis. This lag has left emerging markets in a precarious position, where geopolitical tensions and supply bottlenecks intersect with economic development goals.

Brazil: A New Hub for Rare Earth Processing

Brazil has emerged as a key player in the global diversification effort, leveraging its second-largest rare earth reserves (21 million tons) to challenge China's hegemony. In 2025, the São Paulo state government, through the Institute for Technological Research (IPT), announced plans for its first rare earth processing plant, aiming to simulate and validate separation technologies, according to MineralPrices coverage. This initiative is part of a broader $1 billion public funding push by BNDES and Finep to develop strategic mineral projects (MineralPrices coverage).

A landmark partnership with French processor Carester SAS further underscores Brazil's ambitions: Brazilian Rare Earths will supply up to 150 tonnes annually of dysprosium and terbium, critical for high-temperature magnets (Discovery Alert report). This collaboration bypasses Chinese processing entirely, offering a blueprint for emerging markets to integrate vertically. Meanwhile, Minas Gerais-based Magbras is working toward a 2027 deadline to complete the full rare earth value chain-from mining to magnet production (MineralPrices coverage).

South Africa: Innovation in Extraction and Environmental Remediation

South Africa's approach to rare earths focuses on sustainable extraction from industrial byproducts, such as phosphogypsum stacks. The Phalaborwa project in Limpopo province has achieved a 65% recovery rate of REEs from phosphogypsum, transforming contaminated waste into a valuable resource, as detailed in a Discovery Alert report. This method not only reduces environmental harm but also lowers operating costs, with South Africa's rare earth production costs among the lowest globally (Discovery Alert report).

The project's success hinges on advanced hydrometallurgical techniques, including continuous ion exchange (CIX) and precipitation, to produce high-purity rare earth oxides (Discovery Alert report). By aligning with regional projects in Namibia and Angola-such as the Lofdal and Longonjo mines-South Africa is positioning itself as a hub for low-impact rare earth production, a strategy explored in a Further Africa article. However, challenges remain, including governance risks and competition from China, which continues to dominate refining (Further Africa article).

India: Stockpiling and Strategic Partnerships

India's response to China's export curbs has been twofold: building strategic reserves and incentivizing domestic production. The NCMS aims to create a two-month stockpile of rare earth elements, with plans to expand to other critical minerals (Fortune India analysis). Complementing this, the government approved a Rs 7,300 crore incentive scheme to boost domestic magnet production, targeting 6,000 tonnes over five years (Fortune India analysis).

Despite these efforts, India remains heavily reliant on Chinese imports, with over 90% of its rare earth magnets sourced from Beijing (Fortune India analysis). To address this, India has diversified its partnerships, engaging with Australia, Argentina, and Zambia while leveraging the India-U.S. Initiative on Critical and Emerging Technology (iCET) (Fortune India analysis). A ₹1,500 crore recycling incentive scheme further aims to recover rare earths from electronic waste, though technological and infrastructure gaps persist (Fortune India analysis).

Challenges and the Path Forward

While emerging markets are making strides, systemic challenges remain. Environmental concerns, high capital costs, and technological bottlenecks hinder rapid scaling. For instance, Brazil's processing plant requires years of testing to achieve commercial viability (MineralPrices coverage), while South Africa's Phalaborwa project demands sustained investment in remediation (Discovery Alert report). Additionally, geopolitical tensions-such as China's export restrictions-create regulatory uncertainty, complicating long-term planning (Discovery Alert report).

The path to resilience lies in strategic collaboration. Public-private partnerships, international equity investments, and recycling innovations are critical. The U.S. Inflation Reduction Act and EU Critical Raw Materials Act provide frameworks for supporting domestic production, but emerging markets must also prioritize policy alignment and infrastructure development, as the TradeCloud analysis recommends.

Conclusion

The U.S.-China rare earths rivalry has exposed vulnerabilities in global supply chains, but it has also catalyzed a wave of innovation in emerging markets. Brazil's processing initiatives, South Africa's sustainable extraction, and India's stockpiling strategies exemplify how resource-rich nations can diversify their supply chains. While challenges persist, the long-term outlook is cautiously optimistic: with sustained investment and international cooperation, emerging markets can reduce their dependence on China and secure a more resilient future in the critical minerals era.