China’s Mineral Leverage: How Long Can the Dependency Trap Last?

The escalation of China’s export controls on critical rare earth minerals and related technologies reflects Beijing’s ability to utilise its dominance in critical minerals to create strategic leverage. This leverage stems from China’s strategic indispensability in a changing model of power, where control over rare-earth minerals and their supply chains has become an increasingly important source of influence. Consequently, the possible resumption or expansion of restrictions could lead to significant aftershock implications for economies and industrial sectors that rely on Chinese supplies.

China’s critical-mineral leverage depends not only on how much of a material it supplies but also on how difficult it is to replace its processing capacity, technology, and licensing access before disruption imposes substantial costs on dependent industries. This requires examining four conditions: the concentration of usable supply, the inventories available to absorb disruption, the time needed to qualify alternative suppliers or materials, and China’s capacity and willingness to sustain restrictions. These conditions determine whether market dependence translates into immediate industrial vulnerability or creates pressure that can be managed over time.

So, here there is a distinguish between availability and the feasibility of industrial substitution. The existence of materials outside China doesn’t necessarily translate into a readily available supply. Alternative producers must possess operational processing capabilities, access to appropriate technologies, and the capacity to supply materials that meet customer standards and volume requirements. Consequently, China’s bargaining power is strongest where replacement takes longer than industries can absorb interruption; however, its durability depends on political outcomes and the survival of alternatives.

Hence, China’s strategic importance as an indispensable supplier is a conditional advantage that depends on how difficult it is to replace its supplies before any disruption becomes costly. The fundamental question moves beyond the extent of China’s control over a specific critical mineral to the capacity of the industries that rely on it to mitigate periods of disruption, secure viable alternatives, and maintain production continuity for as long as the restrictions prevail.

A “dependency trap” arises when actors continue to rely on a specific supplier, despite incentives to diversify, due to barriers related to processing, technology, or commercial barriers that prevent a timely replacement of that supplier. This raises important questions about whether China’s control over critical-mineral supply chains can generate strategic leverage faster than other countries can build credible alternatives and how this competition may redistribute opportunities, vulnerabilities, and bargaining power across countries.

On April 4, 2025, China imposed export controls on seven rare earth minerals, including samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium, encompassing their metals, alloys, compounds, and materials used in permanent magnet manufacturing. Amid heightening trade tensions between the U.S. and China, Beijing’s control over a critical-mineral bottleneck gives it strategic leverage it could use to ensure dominance in a highly competitive global race.

The significance of these restrictions extends beyond the rivalry between Beijing and Washington. In general, it strikes a critical chord in the semiconductor cold war between the two countries; however, rare earth elements are also essential to global supply chains supporting the automotive, electronics, aerospace, defence, and energy technology sectors. Accordingly, export control strategies imposed by the key supplier could have a ripple effect across multiple economies and industries.

The International Energy Agency (IEA)’s 2026 Outlook report indicates that the number of Chinese customs codes requiring export licenses tripled between December 2023 and April 2025, reflecting the expanding scope of Beijing’s export control strategies. On October 9, 2025, China expanded export control, signalling a further escalation by introducing restrictions that extend to certain foreign-manufactured products containing Chinese-origin rare earth elements or produced using Chinese technologies specific to these materials.

However, it is important to distinguish between two measures introduced in April and October 2025. On April 4, 2025, China imposed export restrictions on seven categories of rare earth elements and related materials under Announcement No. 18. On October 9, 2025, Announcement No. 61 expanded the regulatory scope to include foreign-manufactured products containing rare earth elements of Chinese origin (subject to a minimum value threshold of 0.1%), as well as other foreign-manufactured goods produced using specific Chinese technologies. However, on November 7, 2025, Announcement No. 70 was issued, suspending six announcements, including Announcement No. 61, until November 10, 2026.

Beyond their legal scope, the effectiveness of these measures depends on China’s ability to trace the origins of minerals, monitor the use of technologies, and enforce licensing requirements across international supply chains. Compliance with these rules could lead to increased administrative costs, delays in procurement, and uncertainty for manufacturers.

The introduction of these measures illustrates the rising importance and, at the same time, threat of the weaponization of global dependence on a strategic component and the vulnerability of dependency as a concept in a highly competitive environment. The IEA report estimates that around 6.5 trillion USD of annual downstream production outside China, including automotive, advanced technology, defence, and energy sectors, could be at risk if these measures were to be fully implemented.

However, the actual scale of economic damage will depend on several factors, including the duration of supply interruptions, the size of available stockpiles, licensing decisions, delays in qualifying alternative suppliers, and the feasibility of substituting the restricted materials. For instance, higher input prices might increase production costs without halting operations, while an inability to obtaib essential inputs could force manufacturers to reduce output volumes or suspend production entirely. Hence, the main risk lies in the extent to which manufacturers can sustain production while securing practical and viable alternatives.

Hence, the broader implication is that strategic vulnerability stems not only from reliance on raw rare-earth minerals but also from the dependency on the processing capabilities and access to the materials and technologies required for industrial production. This bottleneck creates varying degrees of vulnerability across different countries and sectors, depending on their reliance on restricted materials, their capacity to absorb supply disruptions, and the time required to secure alternative suppliers. However, this bottleneck doesn’t automatically translate into political leverage. Beijing’s influence depends on whether such disruptions would impose costs high enough to influence the decisions of governments and corporations before viable alternatives become available.

China’s interest in developing the rare earth minerals sector started in the 1980s, when Deng Xiaoping, the leader during this period, underlined the importance of these resources to the country’s economy. This was the turning point where China has begun working to become the dominant commodity source and refining hub for these minerals globally. China has solidified this position through years of state-backed investment, overseas mine acquisitions, technological development, and pricing strategies that have made it commercially difficult for competing projects to stand out.

China’s strategic leverage over critical minerals stems from a combination of its mine capacity, refining, and processing these materials to transform raw materials into inputs ready for industrial use. The IEA 2025 Outlook report has identified Beijing as the leading refiner for 19 out of 20 key minerals, holding an average market share of approximately 70%. In 2024, China accounted for 60% of the global mining production of rare earth elements used in the manufacturing of magnets. While China accounted for 91% of total global refined production. In the IEA 2026 report, China retained 70–95% of global processing of lithium, cobalt, phosphate, manganese, and graphite during 2025. Moreover, it reports that China’s global share of copper refining capacity is just under 50%, 70% of lithium refining, 75% of cobalt refining, 85% of magnet rare earth separation, and more than 90% of battery-grade graphite production.

Here, the chokepoint originates from Beijing’s unique control over the core stages of transferring raw minerals into components used in various industries, such as magnets, motors, sensors, electronic components, and others. This advantage creates potential supply chain bottlenecks; even when minerals could be extracted in other countries, manufacturers may remain dependent on Chinese facilities and expertise to obtain usable materials for the industrial processes. In addition to that, developing alternative mines and processing facilities requires massive investment, regulatory approvals, technical expertise, and a significant timeframe. In this case, some countries could face deliberate or unintended restrictions regarding the availability of resources and regulations.

Hence, assessing the credibility of these alternatives requires examining the availability of non-Chinese resources, independent processing technologies, qualified technical personnel, and regulatory permits, along with the necessary infrastructure for energy, water, and waste management to ensure continuous production. And most prominently, the alternative’s ability to provide the viable materials in the required volumes and specifications, without becoming bounded to a supply chain that could be disrupted at any time due to export restrictions.
Source: Lazard Geopolitical Advisory. “Critical Materials: Geopolitics, Interdependence, and Strategic Competition.” May 23, 2023. https://www.lazard.com/research-insights/critical-materials-geopolitics-interdependence-and-strategic-competition/

As a response, some countries, notably the United States, have expanded recycling initiatives and material substitution investments following China’s export controls on rare earth minerals. For instance, the Departments of Defence, Commerce, and Energy, the International Development Finance Corporation, and the Export-Import Bank of the United States (EXIM) are financing mines, processing, refining, recycling, and magnet manufacturing. At the same time, the State Department has negotiated several critical minerals agreements, developing international partnerships. For example, Washington and Riyadh have signed a Strategic Framework for Cooperation in November 2025 to secure uranium, critical minerals, permanent magnets, and broader supply chains. The U.S. Department of Defence plans to finance a 49% equity stake in a new Saudi rare-earth refinery with Maaden and MP Materials, as a key part of efforts to build rare-earth supply chains outside China’s control.

However, an announcement of an investment doesn’t necessarily reflect a reduced external dependency. The strategic significance of any alternative diversification-based project depends on the availability of usable raw materials, the types of rare earth materials it can produce, financing, the projected volume of qualified output to meet industrial demand, and the mechanisms for supplying these materials to downstream manufacturers.

Chinese export controls pose varying levels of risk to the countries that have industries using Chinese critical minerals, including the United States, the European Union, Japan, South Korea, and India. It depends on the specific industrial materials and components they import, their position within end-to-end supply chains, and the availability of alternative suppliers. Such factors influence how each economy absorb disruptions resulting from export restriction, and also shape policy responses, ranging from seeking licensing guarantees and diversifying imports to subsidising domestic manufacturing and coordinating international partnerships.

China’s export controls on critical minerals prompt global geopolitical pressure through two interconnected channels: the disruption of industrial operations and strategic leverage. The first channel stems from the restrictions and new licensing procedures announced by Beijing. While these measures may not have completely halted critical minerals trade, they have increased procurement costs, delayed deliveries, and reduced the availability of vital inputs for several industries. Evidence from the IEA 2026 report indicates that trade volumes have seen a significant decline or a complete halt for certain items, such as permanent magnets and other dual-use elements like antimony oxide and tungsten carbide and powder.

Furthermore, following the imposition of restrictions in April 2025 on seven heavy rare earth elements, exports dropped sharply. This left automakers in the United States, Europe, and other regions struggling to secure permanent magnets, forcing some to cut production or temporarily suspend operations. However, the scale and persistence of these impacts have varied depending on available inventories, procurement arrangements, and access to alternative suppliers. And as November gets closer, the licensing requirements introduced in October of last year and then sustained for one year, requiring foreign companies to obtain a license from China to export parts, components, and assemblies that contain rare earth materials of Chinese origin or are produced using Chinese rare earth technologies, could likely come into effect. This could add administrative burdens and delay procurement, reflecting the ability of a country to utilise its strategic indispensability, leading to a disruption in the whole industrial sector without the need for a comprehensive export ban.

The strategic implications extend also to battery supply chains, including graphite anode material, lithium iron phosphate (LFP) cathode materials, and battery production equipment and related technologies. Nevertheless, the mechanisms and the degree of impact vary in each case. For example, restrictions could increase costs for batteries and constrain battery production outside China, impacting several sectors such as electric vehicles. Separately, restrictions could hinder the production of permanent magnets, affecting the manufacture of motors that rely on these components. So, disruptions wouldn’t affect all technologies equally and vary by sector. For instance, a shortage of a specialised component could have severe consequences for defence or aerospace systems, particularly if alternatives require extensive procedures or regulatory approval. This reflects the significance of how restricting one core input, particularly when it is geographically concentred, can have a ripple effect on successive stages of production, affecting industrial output, investment decisions, and the costs of products.

The second channel involves strategic leverage. By controlling access to hard-to-replace inputs, Beijing can raise the projected economic costs of continued confrontation and create incentives for affected governments and companies to seek exemptions, enter negotiations, or adjust their procurement strategies. Beijing could employ export controls to encourage the easing of restrictions on foreign technology, deter the imposition of additional controls, bolster the position of Chinese manufacturing industries, or maintain flexibility for future negotiations. The October 2025 restrictions could demonstrate, if implemented, how export controls can expand their reach into international supply chains. Beijing’s ability to increase, delay, or suspend restrictions grants it the leverage to influence negotiations and partnerships without necessarily curbing trade completely.

However, such measures don’t automatically translate into political leverage. The effectiveness and sustainability of China’s strategic leverage depend on the credibility of imposing further restrictions, the cost of resisting them, the availability of suitable alternatives, along with sequence from supply disruption, pressure exerted on companies, subsequent government decisions, and any documented policy shifts. Evidence suggests that companies are increasingly seeking alternative suppliers, recycled materials, and redesigned products. At the same time, some governments and companies appear to be increasing investments in mining, refining, and magnet production outside China. Together, these developments challenge the extent of China’s political leverage.

Hence, the aftershock may include immediate impacts, such as rising prices, production delays, and increased uncertainty, which translate into risks of complete production shutdown. Whereas long-term consequences may involve supply chain diversification and its associated challenges, the emergence of new processing capabilities, and reduced reliance on Chinese critical minerals inputs. The fundamental question is whether Beijing can transform this strategic leverage into lasting political leverage.

The U.S.-China rivalry in the semiconductor sector highlights an example of disparity between two forms of strategic leverage. First, China’s control over critical mineral processing used in permanent magnets and other advanced industrial sectors. Second, the United States’ leadership in advanced semiconductors design, manufacturing equipment, and related technologies relying on cooperation with key suppliers. These two forms of leverage differ in their substitutability and their broader implications. Restrictions on advanced semiconductors may limit China’s access to cutting-edge computing capabilities, while constraints on mineral inputs could disrupt production across a wider range of industries, including automotive, electronics, aerospace, and defence.

In this case, these measures threaten to disrupt supply chains supporting not only semiconductor manufacturing, but vital industrial sectors, most notably aerospace and defence. Recent developments indicate a potential new direction in global politics: turning access to minerals into a tool for economic and strategic leverage. But is it certain that this projected trajectory could be sustained as countries seek other alternative suppliers?

China’s leverage derived from rare earth minerals faces significant limitations. Its effectiveness relies on immediate supply disruptions, but due to its recent export control decisions, rising costs and uncertainty are driving governments and companies to fund alternative mines, refining facilities, and magnet production plants.

However, the diversification of supply in critical minerals faces various challenges. The contribution from countries that are intended to support the diversification away from China depends on their operational capacity and the delivery of qualified, viable products. In addition, diversification depends on the volume of commercially viable material that can be supplied consistently and in compliance with industrial standards. For instance, heavy rare earth minerals, such as dysprosium and terbium, requires complex processing requirements and the concentration of refining capabilities.

Hence, the significance here is to what extent China can maintain its leverage while simultaneously limiting the effectiveness of alternatives available to others, along with the costs Beijing incurs by exercising such influence. Although China’s restrictions on minerals may cause short-term disruptions and provide strategic indispensability leverage, in the long-run, it could accelerate the diversification of supply chains.
For Beijing, prolonged restrictions could lead to lower export revenues, weaken relationships with foreign customers, and encourage governments to support competing mines, refineries, and magnet manufacturing facilities. Furthermore, these restrictions might impose additional costs on Chinese industries that rely on imported components or internationally integrated supply chains.

In conclusion, three scenarios could likely stem from China’s control over critical minerals and the dependency trap based on the severity of restrictions and the availability of viable commercial alternatives.

The first scenario envisions Beijing retaining substantial processing and refining advantages, while negotiations prevent prolonged licensing arrangements and selective restrictions. Although the United States and other nations continue to diversify their activities, available alternatives remain insufficient to eliminate dependency. This scenario implies the persistence, rather than the termination, of negotiated licensing arrangements. Over a 12–24-month horizon, this would be evidenced by predictable license renewals, stable delivery flows, and limited production of qualified alternatives. And throughout five years, for example, this “managed dependency” could gradually evolve into real diversification.

In the second scenario, an escalation trajectory where restrictions or licensing arrangements intensify, alternatives fail to compete on time, and manufacturers face higher costs or prolonged delays occur. Beijing maintains strategic leverage, the U.S. expands its countermeasures, and other countries bear the economic spill-overs. This scenario includes indicators such as the pace at which licenses and approvals are granted, inventory levels, delivery delays, regional price disparities, the actual volume of alternative production, and qualification standards.

Whereas the third scenario envisions countries making structural adjustments amid a new reality through competing processing facilities, recycling, material substitution, and diversified suppliers. The cost of resisting Beijing’s measures decreases, and export control threats become less effective for industries that possess reliable alternatives. However, recycling, substitution, and the construction of new facilities aren’t equally available or equally fast. For each specific material, the viability depends on the availability of scrap, collection and recovery rates, performance trade-offs, requirements for redesign and qualification, and any reliance on controlled technologies or equipment. Hence, China’s market position remains significant, but the threat of export control becomes less effective for industries that have credible alternatives.

The crucial question is whether an alternative can provide the required materials in the necessary quality, quantity, and timeframe. Reliance on China for the import of heavy rare earth elements is likely to persist for the next few years, though its strategic impact will vary depending on the specific material, industry, and timeframe. Under these conditions, companies could assess their indirect exposure, evaluate alternative suppliers, and maintain sufficient reserves. Governments could prioritise the bottlenecks that can’t be replaced quickly or lack a credible alternative, coordinate support initiatives, and distinguish between measures to ensure immediate continuity and long-term structural reorganisation.

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