Two years ago, this publication argued that rare earth elements (REEs) were becoming a new geopolitical battleground. A family of 17 elements, rare earths sit within the broader category of critical minerals, alongside strategically important materials such as lithium, cobalt, graphite and tungsten. Since then, the contest has shifted from strategic vulnerability to active economic statecraft. China has tightened export controls; the United States and its allies have embraced more assertive industrial policies; Australia is investing heavily in processing; and critical minerals have become entangled with the wider contest over AI, advanced manufacturing and defence. China’s recent restrictions affecting Japan offer a particularly stark example, with supplies of dysprosium, terbium and other controlled materials squeezed amid a broader diplomatic dispute.
The rare-earth contest has thus entered a more consequential phase. What began as a race to secure access to critical minerals is becoming a struggle over industrial chokepoints. Export controls, public finance, strategic reserves and allied supply chains are no longer merely economic instruments; they are tools of geopolitical leverage. Crucially, the commanding heights of this competition lie not underground. The advantage belongs to those able to separate, refine and transform what is extracted into the materials and components on which modern economies and militaries depend.
China’s advantage was built above ground
China’s advantage in rare earths rests less on what lies beneath its soil than on what happens after extraction. Beijing controls close to 90% of global processing capacity, giving it considerable leverage over industries spanning electronics, clean energy and defence. Even an ambitious Western effort to loosen dependence on Chinese supply chains therefore confronts a stubborn reality: alternative deposits do not readily translate into alternative supply.
Australia illustrates the problem. Iluka Resources’ Eneabba site holds an exceptionally rich stockpile of light and heavy rare earths, potentially worth more than €500m. The United States and others also possess substantial resources. Yet geology alone confers little strategic advantage without the capacity to exploit it at scale. China has spent decades assembling an integrated ecosystem of separation, refining, metallurgy, magnet production and manufacturing expertise. The rare-earth contest is therefore not primarily a race for deposits, but for control of the industrial chain that turns them into power.
From dominance to leverage
Rare earths have acquired strategic importance far beyond their modest volumes. They are increasingly indispensable to advanced economies and, crucially, to modern militaries. The same is true of the wider family of critical minerals. Lithium, for instance, underpins high-capacity batteries and the growing electrification of military infrastructure and transport. The US Army’s climate strategy, for example, envisages greater use of battery storage and renewable power across its installations, alongside an all-electric light-duty non-tactical vehicle fleet.
The stakes extend well beyond electrification. Rare earths are embedded in missiles and precision weapons, drones, robotics, advanced electronics, telecommunications and AI infrastructure. Their geopolitical significance stems from an awkward asymmetry: tiny quantities of specialised materials can be indispensable to industries worth hundreds of billions of dollars. The parallel with oil is imperfect but instructive. During the Second World War, Allied access to abundant petroleum and other strategic resources helped sustain their military advantage. In today’s technological competition, processed critical minerals are acquiring a comparable strategic weight.
Erbium offers a glimpse of this vulnerability. European prices have risen by more than 50% since June 2026 amid fears of renewed Chinese export restrictions, exposing supply chains serving telecommunications and AI data centres. Beijing need not impose a comprehensive embargo to wield influence. Control over a handful of hard-to-substitute inputs can be enough to create uncertainty, raise costs and alter the calculations of companies and governments alike.
The Western response: industrial policy returns
China’s dominance has pushed Western governments towards an uncomfortable conclusion: market forces alone are unlikely to deliver supply-chain security. Washington has consequently embraced an interventionist minerals strategy reminiscent of the early Cold War, using public finance to support mines and refineries, negotiating preferential access to overseas deposits and building strategic stockpiles. It is also experimenting with price floors intended to protect Western producers from Chinese dumping. Since October 2025, the Pentagon alone has committed $2.8bn in equity and debt to mining and refining projects, while Washington has pursued minerals agreements with dozens of governments. Europe, Canada, Japan and Australia are adopting variants of the same approach, though with markedly different levels of ambition.
Australia offers perhaps the clearest test of whether such efforts can produce a credible alternative. Canberra has recognised that abundant deposits confer limited strategic advantage without the capacity to process them. Since 2021 it has sought to move up the value chain, supporting refining, separation and chemical processing through public finance and tax incentives. Its flagship is Iluka Resources’ Eneabba refinery, backed by A$1.65bn in government financing and expected to begin producing light rare earths in 2027, followed by heavy rare earths. Crucially, Eneabba is intended not merely to process Australian resources but to become a hub for third-country supplies, including material from Malawi. Canberra has also established a strategic minerals reserve and partnered with Washington on US$8.5bn of priority projects.
Yet the West’s central vulnerability remains. Much of the ore extracted outside China must still travel there for refining. The West is diversifying the mine faster than it is replacing the refinery. Washington is therefore broadening the contest beyond extraction, pursuing domestic and allied processing, recycling and stockpiling while embedding critical minerals within a larger architecture of technological security. Initiatives such as Pax Silica, linking critical minerals with semiconductor and AI supply chains, point to where this strategy is heading. The emerging competition is no longer simply China against Western miners, but China’s integrated industrial ecosystem against an allied supply-chain architecture that is still under construction.
China’s two-edged weapon: scarcity and price
China’s rare-earth dominance gives Beijing an unusually potent two-edged economic weapon. The first is scarcity. Export controls introduced since 2023 have progressively tightened access to rare earths, processing technologies and permanent magnets, allowing Beijing to delay, restrict or deny supplies to strategically sensitive industries. Measures introduced in 2025 went further, extending Chinese oversight to some foreign-made products containing Chinese materials or produced with Chinese technology. Given the dependence of missiles, fighter aircraft, drones, semiconductors and AI infrastructure on these inputs, even selective restrictions can cause outsized disruption. But China can also weaponise abundance. By expanding output and depressing global prices, Chinese producers can make rival mines and processing facilities commercially unviable. Washington’s decision to guarantee a $110-per-kilogram price floor for MP Materials’ neodymium-praseodymium production reflects precisely this vulnerability. Beijing can squeeze competitors from both directions: scarcity raises their costs; abundance weakens the alternatives.
The contest ahead
The rare-earth contest captures a larger transformation in the international economy. For decades, globalisation rewarded efficiency: countries sourced materials wherever they were cheapest. Geopolitical rivalry is replacing that logic with resilience. Governments are increasingly willing to pay a premium for secure supplies, duplicate capacity and strategic reserves. China enters this contest with a formidable advantage accumulated over decades; the United States and its allies are only beginning to rebuild industrial capabilities they allowed to migrate elsewhere. The decisive question is, therefore, no longer simply who possesses the minerals. It is who controls the chokepoints between mine and finished product—and who can turn that control into geopolitical leverage without prompting rivals to build durable alternatives.
