Recently, China announced restrictions on the export of seven rare earth elements.

• The restricted elements include samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium.
  • These elements are vital for manufacturing high-tech and defense-related products, such as magnets for wind turbines, spacecraft, and electronics.

Chinese Dominance in Rare Earths

• China supplies 85–95% of the world’s rare earth demand and leads in both mining and refining.
• Although rare earth elements are not inherently rare, China holds a strategic advantage due to concentrated and economically viable deposits and advanced refining capabilities.
• China has also acquired some of the world’s richest rare earth minerals deposits.
  • Chinese companies have spent more than US$10 billion acquiring mining and critical mineral assets in Africa between 2023 and 2024.

Reasons for the Restriction

• Strategic Leverage: China views rare earths as strategic assets and uses export controls to assert geopolitical influence, as seen during past disputes with Japan and the US.
• National Security: The Chinese government cited the need to safeguard national security and fulfill non-proliferation obligations as key reasons behind the latest export restrictions.
• Trade Retaliation: The move is a direct response to recent US tariffs and growing trade tensions, reflecting Beijing’s intent to counter economic pressure with critical resource control.
• Market Control: By restricting exports, China aims to manage domestic supply, stabilize prices, and maintain its global dominance in rare earth mining and refining.

Global Implication of Chinese Restriction

• Supply Chain Disruption: China’s export restrictions on rare earths like dysprosium and yttrium pose a major threat to global supply chains in electronics, electric vehicles, and defense industries.
• Inflation: Market panic has led to stockpiling and projected price hikes, with dysprosium expected to rise from $230/kg to $300/kg, impacting wind turbines and missile systems.
• Trade Weaponisation: Beijing’s move reflects strategic trade weaponisation, echoing its 2010 rare earth embargo on Japan, highlighting how China uses minerals for geopolitical leverage.
• Trade Diversification: Nations like the US, Japan, and EU are urgently seeking alternate sources and recycling technologies, as dependence on Chinese refining causes costly delays in automotive and renewable energy sectors.
  • Japan’s dependency on China’s REEs dropped from 90% in 2010 to 60% in 2023.

Implications for India

• India’s industries reliant on rare earths, such as electronics, defense manufacturing, and green energy, face heightened risks of supply disruption.
• India must reassess its strategic autonomy and supply resilience in the face of China’s export control and U.S.-China trade tensions.
• The broader context of the U.S.-China tariff wars have placed India in a diplomatically sensitive position, as it balances relationships with both global powers.

India’s Initiatives to Secure Rare Earth Supply

• Domestic Resource Development: India possesses rare earth reserves, primarily managed by Indian Rare Earths Limited (IREL), and is working to enhance domestic exploration and refining capabilities.
• International Collaborations: India has engaged in resource and technology-sharing agreements with countries like Australia and Japan to diversify and secure rare earth supplies.
• Stockpiling and Recycling: Inspired by Japan’s post-2010 strategy, India is considering rare earth stockpiling and increasing focus on urban mining and recycling of electronic waste.
• Strategic De-risking: India supports the global move to “de-risk” supply chains by reducing dependence on a single source (i.e., China) while maintaining essential trade ties.

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