The Middle East has Oil, and China has Rare Earth Elements
In 1992, former Chinese leader Deng Xiaoping made a prescient remark during his southern tour—a prediction that has materialized three decades later. Rare earth elements have become China’s trump card, brought into play whenever trade disputes arise with the U.S. Their effectiveness is undeniable.
China supplies over 90% of the global market with rare earth elements, often hailed as the oil of the 21st century. Given their critical role in industries ranging from semiconductors to defense, their impact is both far-reaching and profound.
What Makes These 21st Century Oil Rare Earth Elements so Special? Despite their widespread occurrence, extraction and refinement present significant challenges.
Industry sources reported on October 19 that China’s Ministry of Commerce announced six export control measures on October 9, including controls on rare earths. This move mandates that any company exporting products containing even trace amounts of Chinese rare earths must obtain approval from the Chinese government.
In April, China banned rare earth exports in retaliation to a 145% tariff imposed by the U.S. This action prompted the U.S. to agree to reduce tariffs by 115 percentage points during May trade negotiations. The recent export control measure is widely seen as China’s response to U.S. pressure tactics, including port fees.
Rare earths consist of 17 metallic elements, including neodymium and dysprosium. These materials are vital in advanced industries—from semiconductors and electric vehicles to smartphones, wind turbines, and missile guidance systems.
Although rare earths are relatively abundant on Earth, their name stems from the low concentrations in which they occur and the complex extraction and refining processes involved, which also raise environmental concerns such as radiation.
Since the 1990s, China has rapidly dominated the global market through low-cost production and advanced refining technologies. Analysts suggest that China has strengthened its domestic rare earth industry supply chain through strategic mergers and acquisitions.
Meanwhile, the Mountain Pass mine in the U.S., once the world’s largest commercial rare earth producer, shuttered due to fierce price competition and stringent environmental regulations.
China, Willing to Shoulder the Environmental Costs, Employs Rare Earths as an Invisible Weapon
Leveraging this advantage, China has amplified its global market influence by strategically using rare earth export controls during trade conflicts with the U.S.
In 2023, China restricted exports of gallium and germanium. Last year, it expanded controls to include antimony, and more recently, it added neodymium and dysprosium—critical materials for high-performance motors and magnets used in artificial intelligence (AI) servers and semiconductor processes.
This explains why Donald Trump administration held an unprecedented press conference on October 15, urging allied nations to present a united front against these challenges.
The U.S. is actively strengthening supply chain cooperation with Australia and G7 nations. Japan, which faced an export ban during the 2010 Senkaku Islands dispute, aims to reduce its dependence on China to below 50% by 2030.
However, reports indicate that U.S. reliance on China for refining and separation processes remains high at 70%.
South Korea Launches a Supply Chain Task Force as Companies Bolster Rare Metal Operations
The South Korean government has responded by establishing a Rare Earth Supply Chain Task Force, involving multiple ministries including the Ministry of Trade, Industry and Energy.
With over 80% of South Korea’s rare earth imports coming from China, the short-term strategy involves aiding domestic companies in securing Chinese rare earth export permits, while long-term plans focus on stabilizing the rare earth supply chain.
Some industry observers view this as an opportunity for domestic non-ferrous metal companies. Firms such as Korea Zinc, with their expertise in rare metal refining, could become pivotal in efforts to diversify supply chains.