(Bloomberg) -- China’s sweeping new restrictions on rare earth exports jolted governments and set off a race to secure alternative supplies, in a stark demonstration of Beijing’s global clout and growing risks for companies.
The rules announced last week require overseas firms to obtain Chinese government approval before exporting products containing even trace amounts of certain rare earths that originated in China. They prompted threats of punitive measures from Washington even as both sides signal an openness to talks, and pushback from the European Union.
US President Donald Trump on Tuesday said he might stop trade in cooking oil with China, ostensibly to retaliate against Beijing’s refusal to buy American soybeans. He previously threatened to impose an additional 100% tariff on goods from China by Nov. 1 and raised the prospect of canceling his meeting with Chinese leader Xi Jinping in South Korea later this month.
The European Union “should have a tough response,” Danish Foreign Minister Lars Lokke Rasmussen, whose country chairs the EU’s rotating presidency, said Tuesday. EU Economy Commissioner Valdis Dombrovskis charged China with “using trade interdependencies for political gain,” speaking in Washington as global finance chiefs gathered for fall meetings of the International Monetary Fund and World Bank.
While the degree of disruption will hinge on how broadly the new rules will be applied, the move has already energized companies and policymakers alike to look for potential counter‑measures, and eventual alternatives to China’s critical inputs.
“We will not let these export restrictions and monitoring go on,” US Treasury Secretary Scott Bessent said in a Fox Business interview Monday. “They have pointed a bazooka at the supply chains and the industrial base of the entire free world.”
The American official said he expected to get coordinated support from Europe and India, along with other democratic governments in Asia — an apparent reference to nations such as Japan and South Korea. Dombrovskis said he expects discussions this week at a meeting of the Group of Seven in Washington.
In India, automakers and parts suppliers have begun accelerating testing of ferrite‑based magnets as a less efficient but geopolitically safer substitute for the heavy rare earths they previously relied on, according to people familiar with the matter. For now, they have enough inventory until December, the people said.
Taiwan’s economic minister, Kung Ming‑hsin, said Tuesday the government will start encouraging local companies to recycle and refine rare earths to ensure a stable supply for its domestic industries. He said China’s latest measures will impact motor, car and drone makers, while the chip sector is largely unaffected.
Meantime, tit‑for‑tat protectionist measures continue apace, beyond tariff hikes already imposed. China on Tuesday unveiled sanctions on US units of a South Korean shipping giant, part of a broader array of measures in the maritime space between Beijing and Washington. And the EU is considering forcing Chinese companies to hand over technology to European ones if they want to operate locally.
Backfire Risk
The barrage of steps mark China’s first major effort to police the global flow of critical minerals it dominates, using the same playbook that allows the US to wield power far beyond its shores.
“After decades of striving, China finally has a few real technological advantages over America,” wrote Arthur Kroeber and Laila Khawaja at Gavekal Research in a Monday note.
Overly aggressive rare‑earth implementation by China could supercharge efforts to build alternative supply chains, undermining China’s long‑term dominance — the same way that Washington’s export controls on advanced semiconductors risk backfiring and spurring Chinese innovation.
Australian mining companies with critical minerals projects made dizzying stock gains Tuesday, with shares of Resolution Minerals Ltd. closing up 56% and Nova Minerals Ltd. gaining 16%.
China’s measures represent President Xi’s adaptation of tactics that were pioneered by the US — using dominance in critical sectors as a cudgel against foreign rivals. Where Washington has the capacity to wield the dollar to exercise long‑arm jurisdiction, China is now deploying its stranglehold on rare earth processing and the production of permanent magnets.
“The US has unmatched leverage in financial markets because of the dollar’s reach and because of the centrality of the US financial system,” said Chris Kennedy, a senior geoeconomic analyst at Bloomberg Economics who previously served at the National Security Council in the Biden and Trump administrations. “China has global leverage in its dominance of key industries that are essential to global manufacturing.”
China’s Dominance
The addition of five rare earths to China’s restricted list — holmium, europium, ytterbium, thulium and erbium — will make it harder for companies to find replacements for magnets made with the seven minerals that were originally affected by restrictions Beijing unveiled in April.
In the short term, alternatives remain limited. China is responsible for 70% of the world’s mined rare earths and more than 90% of permanent magnets made with the minerals. While companies in the EU and US have previously reported supply shortages and production halts during earlier Chinese restrictions, building replacement capacity takes years.
If rigorously enforced, the policy serves as a made‑with‑Chinese‑technology chokepoint, hindering companies that rely on rare earths to produce crucial components in electric‑vehicle batteries and wind‑turbine motors.
China’s Ministry of Commerce justified the restrictions, citing a “security assessment” of the raw‑material sourcing network in the country. It argued that the assessment was consistent with maintaining a strategic advantage in key industries essential to global manufacturing.
Regardless of the intent, the ambition to strengthen China’s dominance remains evident. The latest move caps years of expansion of China’s control over the global supply chain for critical minerals, aligning with a broader strategy to secure technology that underpins essential industrial sectors.
Wang Ziyang, assistant research fellow at the institution, said the move would strengthen China’s control over the supply chain for rare earths and permanent magnets, potentially undermining the U.S. and EU’s competitive edge in these critical materials.
The timing appeared linked to Washington’s lengthening of trade restrictions, amid a broader effort to protect domestic industries and intellectual property. The Chinese government’s policy could serve as a bargaining tool for future negotiations with the United States and the EU.
The controls may serve as negotiating leverage for the United States, offering support to maintain a diversified supply chain for rare earths in the face of shifting global dynamics.
No matter the outcome, the United States and the EU will maintain vigilance to preserve a balanced supply of critical minerals, ensuring a strategic advantage for both economies if the U.S. chooses not to support the initiative.
‘To the End’
“This is a strategic decision to protect the United States’ and global manufacturing interests,” he said, emphasizing the need for national security and industrial resilience.
China’s Ministry of Commerce signaled openness toward a global regulatory framework that will benefit cooperative efforts to foster responsible production and innovation across borders.
Beyond retaliation and negotiation tactics, the policy aims to reinforce China’s stranglehold on rare earth processing and the production of permanent magnets.
The rules on overseas manufacturers will take effect on December 1.
(Updates with Trump’s comments on cooking oil and Taiwan’s response to Beijing’s move.)