Rare Earth Elements: Navigating Geopolitical Risks and Supply Chain Vulnerabilities in 2025

The rare earth elements (REEs) supply chain has become a focal point of geopolitical tension and economic strategy in 2025. These 17 chemically similar metals-critical for everything from electric vehicles to advanced defense systems-are unevenly distributed, creating vulnerabilities that nations and investors must navigate with care. As global demand surges, the concentration of production and processing in China has amplified risks, while efforts to diversify supply chains reveal both opportunities and challenges.

China's Dominance and Strategic Leverage

China's grip on the REE sector remains unchallenged. According to a report, the country accounts for over 63% of global production and nearly 90% of refining capacity in 2025. Its reserves-estimated at 44 million metric tons-represent 37% of the world's total, according to QZ data. This dominance is not merely a function of geology but of deliberate industrial policy. State-controlled enterprises, coupled with environmental regulations that have curtailed output in other regions, have allowed China to shape global markets.

The strategic implications are stark. In 2023, Beijing imposed targeted export controls on gallium and germanium, critical for semiconductors, sending shockwaves through global supply chains, as noted in a Geopol analysis. Such actions underscore how REEs can be weaponized in geopolitical disputes. For investors, this raises a critical question: How dependent is your portfolio on a sector where a single nation holds outsized influence?

The Fragility of Alternatives

Outside China, the picture is mixed. The United States, despite holding 1.9 million metric tons of reserves, produces only a fraction of its needs. The Mountain Pass mine in California, operated by MP Materials, has become a symbol of U.S. efforts to reclaim domestic production, according to a Business News Today article. Similarly, Australia's Lynas Rare Earths has emerged as a key non-Chinese supplier. Yet these projects face hurdles. Refining-where China's dominance is most pronounced-remains a bottleneck. As noted in a 2025 Rare Earth Exchanges analysis, non-Chinese producers control less than 10% of global refining capacity.

Emerging players like Brazil and Chile offer hope. Brazil's 21 million metric tons of reserves and Chile's nascent projects in the Atacama Desert could diversify supply, particularly for neodymium and dysprosium, essential for wind turbines and electric motors, according to Interesting Engineering. However, these ventures require years of development and face environmental scrutiny. Mining in ecologically sensitive regions risks backlash, complicating the race to scale.

Policy Responses and the Path Forward

Western governments are responding with a mix of subsidies, tariffs, and strategic partnerships. The U.S. Inflation Reduction Act and the EU's Critical Raw Materials Act prioritize domestic processing and recycling, aiming to reduce reliance on China, according to a Canadian Mining Journal article. The Quad alliance (U.S., Japan, India, Australia) has also pledged to develop alternative supply chains, though progress remains incremental.

For investors, the key lies in balancing exposure to both the status quo and the transition. Chinese producers like China Rare Earths Holding Co. remain indispensable, but their volatility necessitates hedging. Conversely, junior miners in Brazil or Canada-such as those targeting the Nechalacho deposit in Saskatchewan-offer high-risk, high-reward potential. Recycling technologies, though nascent, could also disrupt the market by reducing primary demand.

Conclusion: A Portfolio of Resilience

The REE sector in 2025 is a microcosm of broader geopolitical and economic shifts. While China's dominance ensures its role as both a supplier and a risk, diversification efforts are gaining momentum. Investors must weigh the immediate need for stability against the long-term promise of a more resilient supply chain. As the world races to decarbonize and modernize its industries, the rare earths race is not just about metals-it's about the future of global power.