Global markets received an unwelcome jolt in April when the Chinese government began to require pre-approval for exports of medium and heavy rare-earth elements. Official statements and state-linked commentators have since made clear that this new export-license system is designed to increase Beijing’s leverage over Pentagon supply chains. It may, in fact, become a signature tool of great power competition.
The Ministry of Commerce laid out the basics in Announcement No. 18: Chinese exporters must now obtain licenses to ship out certain rare earth metals (and their oxides, alloys, and compounds) such as dysprosium, terbium, samarium, gadolinium, lutetium, scandium, and yttrium. The effects have been quick and drastic. In May, Chinese exports of certain related products, such as rare-earth magnets used in technologies from jet fighters to electric vehicles, plummeted by 74 percent compared to the year earlier. This has moved the issue to “center stage in tensions with the U.S.,” as the Wall Street Journal put it.
A flexible lever of statecraft
China’s new rare-earth policy marks a strategic pivot from its earlier quota-based restrictions, which were often justified on environmental grounds. In 2010, Beijing slashed export quotas by 40 percent, citing the need to “curtail pollution and preserve resources” even as prices soared. Other countries complained to the WTO, which in 2014 ruled against China.
Learning from that episode, Beijing forged a new approach designed to withstand international scrutiny: resource governance as an issue of sovereign responsibility, international cooperation, and national security. The narrative is that the new rare-earth licensing system is “to better safeguard national security and interests, as well as to fulfill international obligations such as non-proliferation.” Chinese authorities also frame the move as a prudent alignment with international norms for dual-use exports and point to the 2020 Export Control Law and other new legal tools.
Government ministries repeatedly describe the policy as non-punitive. A Foreign Ministry spokesperson insisted the controls are “non-discriminatory” and do not target any country. The Ministry of Commerce revealed in June that it had already approved a number of export licenses to compliant buyers. Commerce Minister Wang Wentao went further, offering a green channel to expedite licenses for EU-bound shipments, a gesture meant to reassure partners even as the policy remains firmly in place.
But behind the measured language lies a calculated strategy. By raising a “license wall” instead of instilling an outright ban, China is equipping itself with a flexible tool to restrict or permit shipments at will.
The new licensing system affects a deliberately narrow swath of strategic minerals: mid-to-heavy rare earth elements such as dysprosium and terbium that are almost exclusively refined by China (around 99 percent of global capacity as of 2024, according to CSIS). These elements are indispensable for defense and green-energy technologies, making them ideal chokepoints. The approach mirrors past curbs on gallium and germanium in 2023, and on graphite in 2024, moves also justified on national security grounds.
Chinese authorities can approve, delay, or deny shipments case by case, tightening or loosening supply without triggering WTO violations or permanent disruptions. The system is potent enough to cause “full panic” in targeted industries and government ministries, and flexible enough for targeted application. In June, for example, China quietly issued temporary six-month export licenses to suppliers of major U.S. automakers, widely seen as a calibrated gesture to ease mounting concerns over magnet shortages while retaining control of the broader system.
Much of the public discussion of the licensing system has focused on its practical effects on supply chains. Some commenters have focused on the way it enables diplomatic signaling. Fewer have taken note of the bureaucratic capacity that the Chinese government has built to monitor and modulate these flows. The new rare-earth regime includes real-time reporting requirements and end-use declarations, giving Chinese authorities visibility into global supply chains. That surveillance capability, combined with licensing discretion, allows Beijing to calibrate its responses to unfolding diplomatic or commercial friction.
Officials are careful not to acknowledge the new licensing system as an instrument of economic leverage, let alone aggression, but state-linked commentators are more candid about the broader geopolitical intent. A June op-ed on Sina Finance described rare-earth licensing as a trade-war countermeasure, a mimicking of U.S. export-control tactics against China. The sentiment was echoed by Tu Xinquan, dean of the China WTO Research Institute of the University of International Business and Economics, who called the license regime a calibrated escalation designed to give Beijing more leverage over the U.S. defense supply chain.
These developments make clear that the license wall is not just a security perimeter. It is also a flexible, powerful lever of statecraft—and the latest and most sophisticated application of a broader strategy to embed strategic deterrence into trade mechanisms.
A broader trend
Over the past several years, Beijing has refined a model of economic leverage that blends legality, ambiguity, and precision. Resource governance in China is now being weaponized not through crude disruptions, but through systemic control. Officials can offer incentives or deliver pressure, depending on the behavior of foreign firms and governments. The message is implicit but clear: countries that align with China’s interests may enjoy steady access; those that challenge them may face technical delays, withheld approvals, or sudden paperwork snarls.
The rare-earth policy also serves as proof of concept for broader export-control frameworks. Analysts in China are already discussing how targeted regulatory enforcement swathed in national-security rhetoric might be applied to battery materials, aerospace alloys, and biotech.
In future crises or negotiations, Washington and its allies may find themselves confronting not only supply disruptions but also navigating a deeply institutionalized Chinese framework for economic coercion.
The next phase of great-power rivalry will be fought as much through spreadsheets and customs declarations as through tariffs and treaties. To respond effectively, the U.S. will need to treat critical minerals—and other strategic sectors as well—not only as supply-chain issues but also as components of a broader strategic competition. This includes investing in domestic refining capabilities, forging trusted international partnerships, and closely monitoring how Beijing deploys its growing arsenal of economic policy tools.
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