Rare Earthquake: The New Mineral Cold War

China’s export controls are shaking up global supply chains and exposing India’s strategic vulnerabilities.

Earlier this year, India’s Economic Survey sounded a muted alarm: the country was dangerously reliant on China for rare earth elements (REEs), and must act urgently to achieve self-sufficiency. That warning now rings prophetic. What began as a matter of concern has swiftly escalated into one of the gravest geopolitical and economic disruptions of 2025.

In April, China imposed stringent export controls and licensing requirements on seven REEs: samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium as well as on permanent magnets made from them. Shipments stopped overnight. The move was Beijing’s retaliatory salvo after President Donald Trump slapped a punishing 146 percent tariff on Chinese exports. The result is a crisis of global proportions, amplified by China’s near-monopoly in rare earth processing, a leverage it is now using with surgical geopolitical precision.

REEs comprise a group of 17 metals: the 15 lanthanides, plus scandium and yttrium. They are divided into light (LREEs) and heavy (HREEs) elements. Used in electric vehicles, consumer electronics, clean energy systems, defence hardware, and even medical devices, these materials are the lubricants of the modern world.

The automotive sector is their biggest customer. REEs power motors that control everything from car mirrors to sensors, and are essential to permanent magnet synchronous motors found in electric vehicles. They are also used in wind turbines and solar panels to improve energy efficiency. Smartphones, laptops, and headphones owe their vibrant displays and rich sound to REEs. Defence technologies - from missile guidance systems and fighter jets to lasers - depend on them. Hospitals use REEs in surgical lasers and high-resolution imaging. In short, remove REEs and the edifice of modernity begins to crumble.

China’s dominance was not accidental. Decades of methodical state planning laid the foundation. Institutions such as the Chinese Society of Rare Earths (1980) and the China Rare Earth Information Center (1985) played foundational roles. In 1990, China declared REEs a “strategic resource” and began enforcing export controls and production quotas. The government showered the sector with subsidies and trade protections, exploited low labour costs, and ignored environmental fallout. The result is startling: China mines 60–70 percent of global rare earth ore, but controls 85–90 percent of processing and nearly 99 percent of heavy REEs. It also outspends the world in R&D, with 39 universities focused on REE chemistry. By contrast, the United States has none.

China’s strategic foresight effectively killed foreign competition. American mining firms folded. Western industries now find themselves trapped, exposed to supply shocks. Already, the global automotive sector is in turmoil. Most Western manufacturers possess only two to three months of REE stock. Production halts loom large. In India, Maruti Suzuki has slashed its e-Vitara output target from 26,000 to just 8,000 units for the first half of FY26.

The defence sector, too, is rattled. Contractors in Europe and North America fear critical gaps in the supply of components for advanced weapons systems. Renewable energy goals are under threat, with solar panel and wind turbine production delayed.

India, which imports over 80 percent of its REEs from China, has been particularly hard hit. As of mid-June, not a single processed consignment has reached Indian shores since the export clampdown in April. Although 30 Indian firms have applied for Chinese export licences, none has been approved. Diplomatic efforts are stalled, hampered by long-standing trade and political tensions between Delhi and Beijing.

Others were better prepared. Japan, having learned hard lessons from a similar 2010 Chinese embargo, quietly built an 18-month REE stockpile. While the rest of the world is scrambling, Tokyo is sitting tight. India must emulate this foresight by creating reserves, diversifying imports and scaling domestic production.

Efforts are under way to this end. India is seeking alternate suppliers in Vietnam, Indonesia, Japan, Australia and the United States. Some firms are also extracting REEs from electronic waste, though Chinese sources still dominate in terms of cost efficiency. The government has launched the National Critical Mineral Mission, committing Rs. 34,300 crore over seven years to secure overseas mineral assets, build domestic stockpiles, and deepen trade partnerships. Indian Rare Earths Limited (IREL) has been tasked with accelerating extraction. Hindustan Zinc has bagged the first private-sector REE mining licence. Vedanta has pledged a $20 billion capital outlay for critical minerals. Meanwhile, India is also cultivating new partnerships - including with Kazakhstan - to strengthen mineral supply chains.

To build lasting resilience, India must invest in R&D and advanced refining. It should follow China’s example by building academic expertise: 39 research institutions cannot be countered by good intentions alone. Recent amendments to the Mines and Minerals (Development and Regulation) Act have opened the sector to private players, aiming to speed up exploration and break the state monopoly on rare earth mining.

India now stands at a strategic crossroads. The crisis has exposed both a vulnerability and an opportunity. Navigating it will require nimble diplomacy, urgent domestic reform, technological innovation, and bold investment. Otherwise, the country’s vision of becoming a developed economy by 2047 risks being upended by a tiny but mighty class of elements.

(The author is a Chartered Accountant with a leading company in Mumbai. Views personal.)