In October 2025, a negotiation that received relatively little public attention exposed one of the most fragile fault lines in global supply chains. China was preparing to implement a sweeping export control regime covering rare-earth elements and related technologies, with a scope extending from mining equipment to downstream products made overseas with Chinese rare earths.
The critical importance of rare earths lies in the fact that rare earth permanent magnets are directly integrated into electric vehicles, wind turbines, industrial robots, and certain precision weapons systems. Any disruption in separation, refining or magnet manufacturing can quickly transmit pressure downstream. If such controls were fully implemented, modern industries that depend on permanent magnets could face material shortages under a licensing regime.
Once licensing requirements become routine and more restrictive, delays in administrative approval could quickly trigger a chain reaction. Longer delivery times and rising inventories would increase procurement costs, ultimately forcing companies to restructure their investment footprints. The pressure might not immediately cause a price spike, but it would be enough to reshape how entire manufacturing chains operate.
Ultimately, the United States and China reached a "ceasefire agreement" in October 2025. Beijing agreed to suspend some of the October measures for one year, while Washington lowered some tariffs on Chinese goods. After the October 2025 truce, it became harder for governments and companies to ignore that China’s control over critical minerals can shape supply-chain security and industrial decision-making worldwide.
I. Export Controls Shift Toward Full-Chain Control
The October 2025 negotiation were merely the flashpoint, the true groundwork began two years earlier. In 2023, China first imposed export controls on key semiconductor inputs such as gallium and germanium. These measures were later escalated into export bans and expanded to natural graphite, a key battery material.
In April 2025, Beijing added seven heavy rare earths to its export controls list, and in October, it included five additional rare earths, extending the scope to related processing technologies and certain foreign-made products that contain Chinese-origin rare earths. This timeline demonstrates that China is advancing its export controls from the management of single items to the control of the entire industrial chain.
This capability rests on a long-accumulated value-chain advantage. Critical minerals were already part of China’s national industrial planning under Made in China 2025. Over the following decade, China continued to channel resources into this industrial chain, eventually building what is now close to dominance across the critical minerals ecosystem.
In practical terms, with raw materials, processing, magnet materials, and recycling all concentrated in China. Even when foreign markets find alternative sellers, upstream supply and midstream processing capacity may still be difficult to bypass.
This has also changed the nature of export controls. Supply-chain power is no longer only about production volume, it is increasingly about administrative discretion and licensing authority. For downstream customers, the risk is not only whether they can buy the material, but whether they can obtain licences in time and maintain production schedules when upstream supply remains tight.
II. The Real Vulnerability Lies Upstream
The 2024 data show where the most acute supply-chain vulnerabilities lie. The core problem is that U.S. import reliance overlaps heavily with production capacity controlled by foreign entities of concern (FEOCs).
Trade flows may appear diversified at the customs level, but this can create a false sense of resilience. If the underlying mineral sources and core processing capacity remain controlled by China, apparent source diversification does little to reduce structural dependence.
When import reliance, FEOC production share and actual import share are compared together, and the average of these three indicators is used as a supporting reference for risk ranking, natural graphite, yttrium, rare earths and scandium fall into the highest-exposure category.
These minerals are used across different industries, but they point to the same underlying reality, high-tech manufacturing. The energy transition and the defense industrial base all depend on a small number of upstream and midstream nodes.
Gallium is a useful example. The U.S. net import reliance on gallium has reached 100%, and the FEOC production share is as high as 99%. However, the apparent share of U.S. imports coming directly from FEOCs is only 14%. Looking only at that 14% could easily create the mistaken impression that the risk is manageable.
In fact, taking one step further upstream reveals the problem. Highly concentrated global capacity means third countries may only provide transshipment or basic processing, while core separation and refining capacity has not truly moved elsewhere.
The data show that de-risking can’t stop at changing the place of purchase. Without addressing production concentration and the development of substitute technologies, it will not reach the real core of supply-chain security.
III. Downstream Exports Stabilizes, but Upstream Remains Controlled
Export data for 2025 further show how Beijing manages pressure across the supply chain. Start with China’s downstream exports of rare-earth permanent magnets, as essential components for motors and automation systems, these magnets remained at 6,356 metric tons in January 2025. After the licensing regime took effect in April, exports fell to 2,627 metric tons, then dropped further to 1,238 metric tons in May. However, they had rebounded sharply to 6,146 metric tons in August.
Measured against the 2024 monthly average of 4,846 metric tons, the first-quarter average in 2025 was even slightly higher, at 5,089 metric tons.
Subsequent exports also returned broadly to near-normal levels. This trajectory suggests that China did not choose to keep downstream magnet exports under sustained pressure. Instead, it allowed end-use manufacturing chains to resume operations, while preserving its own position in global magnet and downstream manufacturing markets.
Even more critical are upstream raw materials. The seven medium and heavy rare earths brought under export controls in April 2025, samarium, gadolinium, terbium, dysprosium, lutetium, scandium and yttrium. Correspond to upstream metals and compounds whose exports averaged about 307 metric tons per month in 2024.
In the first quarter of 2025, exports remained broadly stable at around 310 metric tons per month. But after Beijing launched the licensing regime in April, shipments immediately fell to 149 metric tons. In May and June, they almost disappeared, dropping to just 0 to 1 metric ton.
Even after the later “ceasefire agreement” allowed downstream magnet exports to recover gradually, exports of these upstream materials averaged only about 185 metric tons per month from July to November, still well below previous levels. In other words, the truce eased the immediate pressure on downstream supply, but it did not reopen access to the upstream inputs.
Comparing the two charts reveals that China allowed downstream magnet exports to gradually recover, enabling the global manufacturing chain to return to operational status, while keeping upstream raw materials in a restricted supply state, thereby retaining supply chain dominance in its own hands.
This demonstrates China's ability to regulate market conditions, end users could still obtain some finished products, but the underlying upstream dependence remained intact.
IV. Technological Leapfrogging: The Answer Is Not to Catch Up
Given China’s entrenched capacity advantage, the U.S. does not need to compete with China's lead on existing tracks. Rather, it should reduce China's monopoly position through technological iteration.
1. Materials Engineering: Reducing Rare-Earth Dependence at the Source
Niron Magnetics as an example. The company is developing iron nitride magnets that rely only on abundant iron and nitrogen. Construction of its first manufacturing facility began in September 2025. If federal procurement standards shift away from specifying particular materials and toward performance-based standards, alternative technologies of this kind could gain much wider market space.
2. Waste-Based Recovery: Turning “Urban Mines” Into Supply
The U.S. has vast oil and gas fracking wastewater streams that contain lithium, while decades of mine tailings also hold significant rare-earth resources. Recovering these materials can be faster and easier to permit than developing new mines. However, China has already moved into this field, establishing China Resources Recycling Group in 2024. If the U.S. continues to export e-waste, it is effectively allowing strategically valuable materials to flow back into China-linked supply chains.
3. Allied Cooperation: Combining Technology and Capital
The report argues against a go-it-alone approach. It calls instead for combining Australia’s mining expertise, Japan’s refining capabilities, and U.S. research and capital. Through G7 coordination on procurement commitments, allied countries could create markets large enough for alternative technologies to scale and attract private capital.
Source: Heidi Crebo-Rediker & Mahnaz Khan,《Leapfrogging China's Critical Minerals Dominance: How Innovation Can Secure U.S. Supply Chains》, CFR Council Special Report No. 101, February 2026.
