[Source/Author: Observer Network Columnist Mindset Observation Institute]

On April 4, the Ministry of Commerce, in conjunction with the General Administration of Customs, issued an announcement implementing export control measures on seven types of medium and heavy rare earth-related items, which took effect immediately upon publication.

Before the announcement was released, it coincided with the introduction of Trump's "tariff blitz" - this tariff measure, which has had the strongest impact on the global economic and trade landscape in nearly a century and covers the widest range, can be expected to reshape the U.S. and global economies, drive up inflation, and hinder economic growth.

Interestingly, Trump claimed that day as America's "Liberation Day," because on that day, America achieved "economic independence." China's current export control measures on the seven types of medium and heavy rare earths are precisely to tell him what true "economic independence" is.

This is not the first time that China's Ministry of Commerce has used rare earth controls as a countermeasure against hegemonic and unilateral efforts to dominate global trade rules, but this time there are many institutional innovations compared to previous measures, presenting significant strategic upgrades and precise strike features.

Upgraded Full-Chain Precision Control

In 2010, China's rare earth export quota system was the first large-scale attempt to seize pricing power for resources. Although it was not sustainable due to WTO rule restrictions, it objectively reshaped the global rare earth industry landscape and forced the international community to take notice of China's resource rights.

Different from the 2010 quota restrictions on total rare earth exports, this control measure directly targets seven types of medium and heavy rare earth elements: samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. It covers core technological fields such as laser crystals (yttrium aluminum garnet), permanent magnets (dysprosium/terbium), and nuclear reactor control materials, allowing for precise strikes against the supply chains of high-end manufacturing industries in opposing countries. For example, the permanent magnets in advanced American fighter jets like the F-35 and the guidance systems in "Patriot" missiles both require critical elements such as dysprosium and terbium, while U.S. strategic reserves can only sustain a very limited period of time.

Moreover, this time a new export licensing review mechanism has been added, targeting not only rare earth raw materials but also finished products containing rare earth components, such as gadolinium iron alloys. This, coupled with the "Regulations on Rare Earth Management" issued last June, strengthens the feature of incorporating "technical correlation" (such as rare earth separation technology) into the control scope, forming full-chain control from mine extraction to end products.

There is no doubt that the U.S. is quite apprehensive about the inclusion of "technical correlation" within the governance scope.

June 29, 2015, Mountain Pass, California, USA, Molycorp mining rare earth minerals. Shortly after, Molycorp announced bankruptcy (@Visual China)

In 2019, during a conversation with James Kennedy, president of ThREE Consulting, he had already keenly observed that rare earth resources are almost impossible to apply to technology or defense before being refined into metals and other post-oxides, and China has locked down access to rare earth metals, alloys, magnets, and most post-oxides globally, with only one source worldwide at that time.

Seizing the refining of rare earths hits the "Achilles' heel" of the opponent. David Merriman, an analyst at Project Blue, told the media: "Currently, apart from China, Myanmar, and Laos, there is only one rare earth mine in operation worldwide, mainly focused on heavy rare earths." The so-called "only one" refers to Brazil's Serra Verde mine, whose minerals still need to be refined and processed in China.

For years, the United States has tried to build alternative supply chains through the "Mineral Security Partnership" (MSP), but it faces multiple challenges. Lynas Corporation's rare earth refinery in Australia depends on Chinese technology, and although the EU plans to achieve self-sufficiency in batteries by 2025, its core materials still depend on Chinese refining.

Reconstructing Global Rare Earth Value Chain Pricing Power

In the context of the ongoing escalation of the U.S.-China tariff war, China's choice to use rare earths as a countermeasure has a two-pronged leverage effect. The U.S. relies on China for 80% of its rare earth imports, and the irreplaceability of rare earths in military products such as the F-35 fighter jet and guided missiles means that control measures can substantially affect the implementation of the U.S. Defense Production Act's critical material list.

Not long ago, the U.S. MP Materials company had become accustomed to exporting two-thirds of its mined rare earth concentrates to China for processing, then selling them back at high prices as magnets. Meanwhile, Western entities dominated rare earth futures pricing through platforms like the London Metal Exchange (LME) and the Chicago Mercantile Exchange (CME), while China, as the largest producer, lacked话语权.

The world's largest light rare earth mine is the Baiyun Obo Mine near Baotou City, Inner Mongolia, China

Through these controls, it can also drive overseas enterprises to relocate their rare earth processing operations to China. For instance, Tesla Shanghai's super factory can fully deploy its rare earth magnet production line locally, potentially changing the long-standing profit distribution model where "China exports rare earth raw materials - Europe, America, and Japan process high-value-added products."

For many years, the U.S. has viewed rare earth pricing power as an "untouchable holy grail," constantly fortifying it with layers of protection. For example, they once enacted the Inflation Reduction Act's industrial subsidies - government subsidies amounting to billions of dollars for the local electric vehicle supply chain. This time, China's rare earth controls can increase the cost for U.S. automakers to obtain permanent magnet motors, weakening their cost competitiveness in electric vehicles. According to market research firm Benchmark Mineral Intelligence, this move could increase the cost of U.S. electric vehicle batteries by 5-8%.

Moving from "Resource Defense" to "Technology-Rule Offense"

When the gentle "King Dao Education" encounters the arrogant barrier of the iron curtain, we are writing a new chapter of the "Salt and Iron Discourses" in an Eastern style with decisive actions.

This time, the rare earth control strategy needs to note the four words "immediate effectiveness." The announcement took effect on the same day it was published (April 4, 2025), and the "List of Dual-Use Items Subject to Export Controls of the People's Republic of China" was updated simultaneously. There was no transitional period, breaking away from the previous policy buffer period convention, highlighting strategic deterrence intentions and forcing importing countries to adjust their supply chains in the short term.

Ringing the mountain to shake the tiger also helps us to divide and weaken the so-called U.S. ally camp. As mentioned earlier, the U.S. once led the so-called "Mineral Security Partnership (MSP)" plan, which invested $2 billion over five years to develop alternative sources. However, the development of cobalt mines in the Democratic Republic of Congo and heavy rare earth projects in Myanmar has been constrained by extensive Chinese capital involvement, exposing structural contradictions in the Western supply chain reconstruction.

In addition, this rare earth control can be coordinated with the "Rare Earth Management Regulations" requiring a "rare earth product traceability system," achieving full-process blockchain supervision from mines to exports, greatly increasing the difficulty of smuggling through gray channels.

June 29, 2024, the State Council of China officially released the "Rare Earth Management Regulations"

China Rare Earth Group and Northern Rare Earth control 90% of the national mining quotas, restricting illegal capacity through the "full-caliber supply constraint" policy to further consolidate global pricing power and enrich our "technology-rule offense" strategies.

As soon as the announcement was released, cries of despair arose across the ocean. Mark Smith, CEO of NioCorp Developments, stated that his company had been approved to construct a $1.2 billion rare earth mine in Nebraska but had yet to secure substantial financing: "Finding an alternative will take time." Its stock fell 8.1% last Friday, and MP Materials' stock also dropped by 10.1% accordingly.

In summary, the issuance of this control measure marks China's transition from "resource defense" to "technology-rule offense" in its rare earth strategy. In the context of the tariff war, it opens a new dimension of competition, and its real power does not lie in immediately cutting off supplies but in creating "anticipated anxiety" in the supply chain, compelling opponents to make compromises in key technologies. It also resonates with policies from the Ministry of Science and Technology, the Ministry of Industry and Information Technology, and the National Development and Reform Commission, further securing global dominance in the new energy industry.

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