China’s strategic use of rare earth export controls marks a new phase in its economic statecraft, one that is forcing major economies to reassess their supply chains and trade policies. As Beijing clamps down on shipments of rare earth minerals and the specialized magnets they produce, it is no longer just sending signals—it’s exerting real economic pressure.

According to Chris Miller, author of Chip War and adviser to Vulcan Elements, the recent restrictions have not only sparked fears of global shortages, particularly in the automotive sector, but also pressured the U.S. to reverse key tariff policies. “They represent a new era of Chinese economic statecraft,” Miller writes, “evidence of a sanctions policy capable of pressuring not only small neighbours but also the world’s largest economy.”

From Symbolic Sanctions to Strategic Impact

In the past, China’s economic retaliation was often symbolic—cutting wine imports from Australia, restricting pineapples from Taiwan, or pressuring South Korea over its U.S. missile defense system. These measures were politically motivated but economically limited.

Rare earths, however, are different.

The materials are essential to everything from electric vehicles to defense technologies. After Beijing’s spring 2025 announcement of export controls, automakers globally warned of imminent supply chain breakdowns. Some factories even prepared for shutdowns. Indian carmakers cut production. European Commission President Ursula von der Leyen brought a rare earth magnet to the G7 meeting in June to call for urgent diversification.

The result: the Biden administration was forced to ease tariff escalations, underscoring the rare earths’ strategic leverage.

Why Rare Earth Sanctions Work

Three reasons explain why this round of sanctions is more effective than earlier ones:

• Legal and logistical preparation: China built a regulatory framework that allows it to selectively cut strategic exports while keeping legal cover.
• Targeted pain: The rare earth sanctions hit at key nodes—EV supply chains, aerospace firms, and defense contractors—where even small disruptions have disproportionate impacts.
• Global reach: China didn't just restrict exports to the U.S., but also to Japan, South Korea, and the EU—putting allies on notice and pushing them to pressure Washington.

Beijing has also demanded that foreign firms avoid using Chinese rare earths in products destined for the U.S. defense sector, taking its pressure campaign extraterritorial.

A West Unprepared

Despite China first using rare earth restrictions against Japan in 2011, Western nations have done little to diversify. Some countries like Japan have invested in Australian mining operations, and South Korea expanded stockpiles, but most governments created “critical minerals strategies” that were never funded.

“Even those who cannot name a single rare earth element know that China dominates their production,” Miller notes. “This is a weapon they have been staring at for decades.”

The consequences of this complacency are now materializing. Many manufacturers keep only a week’s worth of rare earth magnets in their inventories—hardly enough to weather a strategic embargo.