Flashpoints | Economy | East Asia

Why the World’s Hedging Responses to China’s Rare Earth Dominance Have Failed

At the heart of the global effort to diversify away from Chinese supply of critical minerals is the tension between friendshoring and strategic autonomy.

China’s dominance over the global supply of rare earth minerals – and related export controls – have been one of Beijing’s key geoeconomic levers in recent years. Since the second wave of U.S. trade sanctions in April 2025, China has ramped up restrictions. Most recently, in June 2026, Beijing added more new U.S. companies and created a reporting mechanism for violations, thereby further weaponizing its rare earths dominance. 

Government efforts to diversify away from China in Asia, North America, and Europe have been moderately successful, foremost regarding light rare earths. But Beijing still possesses such extraordinary leverage, particularly in the heavy rare earth elements (HREEs). These materials are essential in the production of high-temperature permanent magnets and are widely used in advanced defense systems, electric vehicles, and offshore wind turbines.

It is evident China is the lone superpower in this field. It currently dominates all three stages of the value chain, with International Energy Agency (IEA) statistics showing China controls nearly 60 percent of HREE mining, 91 percent of refining, and 94 percent of magnet production in 2024. Notably, China’s dominance increases as it moves downstream.

China has the world’s largest reserves of rare earths, with nearly 44 million metric tons, nearly 48 percent of global reserves, according to the USGS. But that’s only part of the story. China’s main advantage lies in the refining and production stages that turn rare earths in usable inputs. This is the result of decades of investment in perfecting the technical know-how and the supporting ecosystem that cannot be simply replaced. 

Recreating China’s supply chain is therefore not a resource issue, but an expertise and ecosystem one. There is no single competitor that currently possesses China’s combination of resources, processing capacity, technical expertise, manufacturing scale, and downstream demand. Much of the capability that exists outside of China is fragmented geographically. Other nations seeking to diversify their supply chain away from Chinese dominance are facing an extremely difficult job. How to compete with an actor that has dominance across multiple subsectors, both down and upstream, and by such large margins, and which was built over years? Efforts to address the issue are numerous: from the EU’s Critical Raw Materials Act (CRMA), to U.S. governmental efforts, including Project Vault, as well as Australia’s and India’s new initiatives and policies. With strategies full of keywords like “self-reliance” and “diversification,” the intent is clear, but it remains to be seen how effective these programs will be. They may never fully succeed. Instead, Asian nations should look back at recent Cold War history and apply hedging strategies. While hedging is often understood as balancing between two political superpowers, it can be equally applied to a single-power economic domain. With China as the clear, lone, superpower in the rare earths sector, all other nations, middle powers and beyond, should understand that coordination is the key variable. 

An effective counter-response should focus on diversification and cooperation, across commercial entities and state actors, in terms of rare earth mining and processing. But equally vital – and frequently still absent – alignment in domestic policies toward rare earth minerals development. Simultaneously establishing similar policies across several states will be good for critical minerals stock indexes but will only lead to further competition among states that are all pursuing the same purpose. Ironically and counterproductively, independent diversification efforts could lead to further reliance on China, as individual states undercut each other through competition.

Fortunately, states are increasingly understanding the necessity for cooperation: Most recently, Japan has reportedly expressed interest in jointly mining rare earth elements from deposits in India, after a preliminary pact – the Memorandum of Cooperation between the Geological Survey of India and Japan Organization for Metals and Energy Security – provided a framework for joint geological surveys and mineral exploration. Already, Toyota Tsusho’s rare earth venture in Andhra Pradesh, running through subsidiary Toyotsu Rare Earths India, processes thousands of tons of rare earth oxides for export to Japan. 

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