Seven Points Worth Thinking About China’s Gameplay on Rare Earths

Don’t Fall for Alarmist Accounts

Authors

There is an alarmist narrative that goes something like this: Rare earth elements (REEs) are indispensable for the modern economy. China dominates the mining and processing segments of the REE supply chain. Thus, it holds a trump card that can bring the world down. The world has no other option but to comply with its demands. Moreover, China has assiduously reduced its dependencies on the world. It is more or less atmanirbhar (self-sufficient) and hence the rest of the world has no effective leverage against China’s bullying.

Tannmay Kumarr Baid and I have written a couple of opinion pieces for Times of India on this topic. You can read them here and here.

Now, let me present some facts that everyone convinced by the above narrative should read before making up their mind.

  1. Critical minerals (including REEs) aren’t like oil. You don’t have to constantly refill your lithium battery the way you do a gas tank. The minerals in a phone, laptop, or electric vehicle stay there for years. If oil supplies get cut off, everything grinds to a halt—transportation, industry, heating. Oil-importing countries worry about inflation because an oil blockade or mere price rises impact every citizen immediately and visibly. But that’s hardly the case with critical minerals. We need lithium, cobalt, and rare earth elements to build EVs, batteries, and electronics, but they aren’t being used up daily. And compared to oil, the quantities we need are tiny. Countries don’t need millions of tons of lithium annually the way they need oil. That also means stockpiling is easier—a nation can hold reserves for years without worrying about them running out. Besides, critical minerals can be recycled, recovered, and reused from used products.
  2. Rare earth magnets are vital but not indispensable. Such magnets produce high-strength magnetic fields and have an exceptional strength-to-weight ratio, which enables the design of compact and efficient motors. Cars can and do get made without such magnets, but that would mean sacrificing efficiency, speed, or compactness.
  3. The problem hitherto wasn’t that these permanent magnets were costly, but that they were too cheap for others to make production viable. Market prices of Neodymium—used in most rare earth magnets—have halved since 2022. These restrictions are raising prices, sending a signal to other foreign companies to get their act together. The current restrictions differ in that China has formally acknowledged them as retaliatory actions and established a bureaucratic structure for implementing them, giving them a semi-permanency that didn’t exist earlier. This should give hope to competitors worldwide. Other governments can play a role by reducing regulatory barriers to enable alternate extraction, refining, and recovery.
  4. China too has weaknesses in the critical minerals supply chain. China’s foreign dependence as of 2023 is significant. Over 65 per cent of its demand for aluminium, copper, iron, lithium, titanium and uranium is through imports. For chromium, cobalt, nickel, and manganese, the dependence is over 90 per cent. In recent years, it is also an importer of REE concentrate. Hence, its strategy to buy out mines in other countries. This is a significant lever that different countries have over China in this supply chain.
  5. If Chinese companies can build a DeepSeek without the most advanced GPUs, automakers across the world can definitely build electric motors without Chinese rare earth magnets. The capability, knowledge, and capital required to substitute China’s rare earth magnets is not that difficult. China does not possess any processing and refining techniques that cannot be copied or replaced.
  6. The quantities required for many critical minerals is tiny. For instance, the total US imports of gallium metal and gallium arsenide wafers in 2022 were about $225 million. The entire US yearly consumption is just 18 tonnes and can be fitted in a single truckload. For REEs, the US imported only $170 million in rare earths in 2024, down from $186 million in 2023. Even a tenfold price increase would barely register in the larger scheme of things. The India figures are even lower.
  7. The biggest moves will happen not by finding rare earth sources elsewhere but through subsystems that rely less or not at all on REEs. Tesla has announced that its next-generation vehicle platform will eliminate rare-earth magnets completely. Toyota and European suppliers have demonstrated permanent magnets that replace half the heavy rare earth content with more abundant lanthanum and cerium. Domestically, Indian electric mobility companies are readying plans to move to ferrite core magnets or induction motors, which would slash their REE dependency.

These facts should make people reconsider the narrative that China has played a geopolitical masterstroke.