by Nout Wellink
In this article, Nout Wellink updates us on REE. What are REE, what role does it play in the very current trade war and how does it affect geopolitical relations? The author also discusses the historical backgrounds and which way it is going or could go.
What are REE?
Rare earth elements (REE) – products with complicated names such as neodymium, dysprosium, europium, terbium, etc. – are “the talk of the town” today. That’s because they have become an important part of the US trade war. This trade war – which started years ago on a smaller scale – has led to counter-reactions, especially from the Chinese side, and is based on intertwined strategic (geopolitical) and economic considerations.
REE (about seventeen in number) are a catch-all term. This also applies to the products in which these metals are processed. In the following, the focus is mainly on REE and not on the much larger group of critical, less rare elements, although they are also of great economic importance and sensitive to supply risks.
There are gradations in the rarity of REE and in the importance of the goods produced with it. The rarest earths are difficult to replace due to their unique properties and are used in the knowledge-intensive and strategically relevant sectors (such as aerospace, defence, healthcare, green and digital transition).
Broadly outlining the development, you could say that the demand for REE was relatively low until the eighties of the last century, started to grow considerably in the nineties and exploded not too long after the turn of the millennium. The cause of the latter was the rapid commonplace of consumer electronics (smartphones, laptops) and the sharply increasing demand for wind turbines, hybrid electric cars and advanced technology for defense purposes, among other things. It is clear that important suppliers of REE could thus play a pivotal role with an associated dominant position in the economic process.
Chinese dominance
China has dominated the REE market for many years (Deng Xiaoping: “the Middle East has oil, China has rare earths”). Depending on sources and precise definitions, somewhat different figures can be found, but it is widely accepted that about 70% of mine production (in and outside China) is in Chinese hands, 40% to 50% of known REE reserves, and it is estimated that around 90% of refining capacity is in Chinese hands. Even if countries can extract more REE in the short term, there is still a high dependence on Chinese refining capacity and technology for the time being.
The Chinese monopoly position has not been acquired overnight, but the result of a clear and successful long-term strategy, in which the tight steering and facilitating hand of the central government is clearly visible. Three examples of this.
In the first place, China started actively looking for rare minerals outside its own country relatively early. Many countries along the so-called Silk Road are rich in minerals (e.g. civil war-stricken Myanmar, Afghanistan, Kazakhstan). China has therefore made the exploration and development of REE a not insignificant part of its Silk Road strategy. China has also concluded REE contracts for countries that are not on the Silk Road, including Tanzania and Greenland. In these countries, however, the extraction of REE sometimes meets with local and understandable resistance because of environmental problems and working conditions.
Second, in order to get a grip on production and refining of REE, the Chinese government has strongly consolidated the sector from 2021 into two large state-owned enterprises and a third in which the state has indirect power. Years earlier, many local mines in larger entities had already been brought under state control.
Thirdly, despite its already dominant position, China invests in large-scale geological research in order to obtain a complete picture of all the mineral resources present in its territory. Surprising discoveries have already been made (including large lithium reserves, but also pure quartz glass for the semiconductor and solar panel industry, and even a very large gold deposit). The authorities allocate very significant sums of money annually to this geological survey, totaling more than $60 billion in the five-year plan for 2021-2025.
The first clash of arms with rare earths
In the two decades preceding 2010, China gradually expanded its dominant position in the REE sector through export quotas and taxes. These measures were not yet country-specific and were presented as appropriate to China’s industrial policy and taken to protect the environment and natural resources. That changed in 2010.
On September 7, 2010, the first real major dispute arose about REE. The reason was a maritime, territorial conflict on islands in the East China Sea that were administered by Japan but claimed by China. After a collision between a Chinese fishing boat and two Japanese coast guard ships, Japan arrested the captain of the Chinese fishing boat. China immediately took a number of diplomatic steps, but a few weeks later it became clear that – despite the absence of a formal export ban – the export of REE to Japan had effectively been stopped (“administratively upheld”). Export quotas were also significantly reduced worldwide in 2010 and 2011.
In 2010, therefore, the first clear evidence can be found that China was willing to use rare minerals to the full as an economic and geopolitical weapon. Japan, the first victim, was extremely vulnerable due to its industrial structure (electronics, car, magnets). On 24 September, the Japanese government felt compelled to release the captain. In the following weeks, the situation gradually normalized due to the Japanese ‘capitulation’.
REE no longer a neutral raw material
In 2012, Japan, together with the US and the EU, initiated proceedings under the WTO (World Trade Organization) for discriminatory Chinese export restrictions on some specific earths. This procedure was won in 2014. China accepted the decision for the metals in question and gradually reduced global export taxes, but without really giving up control on REE.
In the years that followed, things remained relatively quiet, although Chinese officials hinted several times during that period that REE are not neutral commodities. China also showed this in practice. In 2019, in response to US trade measures, Chinese state media explicitly suggested that China could use the REE weapon against America. Furthermore, in the years 2020-2022, pressure was (informally) exerted on Taiwan (due to visits by Western parliamentarians) and Lithuania (due to the opening of a Taiwan Rep Office in Vilnius) with the help of the REE weapon.
A quantum leap in the deployment of REE weapon
The first shift towards a structurally harder deployment of the REE weapon took place in 2023. For China, the U.S. chip restrictions gradually began to affect vital interests. Almost month after month, in response to the US measures, stricter export and licensing rules were announced for the more important REE and related technologies. This continued in 2024.
At the end of 2024, beginning of 2025, American-specific measures were taken for the first time. China had hesitated about this for a long time. In April 2025, the situation escalated further. A few days after Trump’s Liberation Day – (April 2) – the day on which the American president triumphantly came up with a large package of trade measures – China introduced export restrictions on 7 medium and heavy REE that are particularly important for magnets and defense. On 9 October, these rules were significantly further tightened and extended to include production lines and technology export bans, which also affected third parties abroad who use Chinese technology. The knives were sharpened and the willingness to use them was clearly displayed.
For the Americans, all this seemed to come as an unpleasant surprise. There seems to be a fairly systematic underestimation of China’s ability to retaliate and the increased willingness to use it when red lines are crossed and truly vital interests are affected. Trump’s initial threats that “he has cards that would destroy China”, including the threat of 200% import tariffs, were quickly swallowed.
In a de-escalating telephone conversation on October 30, 2025 between Presidents Trump and Xi, a number of the announced and taken measures were put ‘on hold’ for a year on both sides, with quite a few loose ends. That does not mean that the REE weapon is off the table. Not only the REE weapon, by the way. China now appears to be willing to use other weapons much harder if they are available. The Netherlands experienced this when it took measures with regard to chipmaker Nexperia without first consulting with Chinese authorities in an orderly manner and without any understanding of manners with other cultures.
The strategic responses to China’s REE dominance
Worldwide, a race is now underway to secure the availability of REE for their own economy in the shortest possible time. Although the awareness that dependence on China should be reduced had been established for some time, the urgency of this outside Japan was still insufficient. That has now changed.
The US, with only about 2% of global REE reserves, is currently knocking on just about every door to access reserves, even on the door of war-torn Ukraine. The US also supports domestic producers financially and guarantees a minimum price. This is necessary for these companies to be able to bear major business risks. In addition, contracts are concluded with foreign companies and governments on extraction and refining, for example with Australia, Malaysia and Uzbekistan. Understandably, quid pro quos are asked for this. For example, Malaysia has demanded quid pro quos in the field of local employment and technological knowledge transfer, among other things.
Europe is also involved. In 2024, the EU formulated concrete REE targets for 2030 with regard to consumption, processing, recycling and dependence on one external country per raw material. The EU has also established partnerships with a number of countries.
Meanwhile, G-7 energy ministers agreed in Toronto at the end of October 2025 to jointly tackle the REE problem. This involves investments, partnerships and the mobilisation of large sums of money in critical mining projects. The message to the outside world of the G7 was clear: only through cooperation and innovation can China’s hegemony with regard to REE be broken.
It takes time
According to Bessent, the US Secretary of the Treasury, the US would be able to fully meet its own needs for REE in two years’ time. The wish seems to be the father of the thought here. Experts estimate that the complete completion of a typical REE project takes more than six to 18 years, an average of nine years. There are experts who assume shorter timelines, but these experts also believe that it will take at least five to ten years before Western countries can independently control a substantial part of the REE chain. The reasons for this are clear.
Extracting and preparing for use is extremely capital-intensive and environmentally harmful (water and soil pollution, excessive energy consumption, radioactive waste). Other bottlenecks in the exploration of new sources include infrastructure, political decision-making and sufficient certainty about price developments. The solution to the REE problem therefore necessarily requires a very close involvement of governments.
Given the many conditions that must be met to set up a successful REE production chain, it will not be easy to achieve sufficient independence from China within a reasonable period of time.
The future is hidden in the lap of the gods
With regard to China, there has been a shift from competition to confrontation in recent years, on economic and strategic grounds. The emphasis is increasingly on chips and rare earth metals. These are political means of pressure that affect mutually vital interests and can lead to dangerous, harmful situations if used carelessly.
US policy has given a strong impetus to China’s drive for self-sufficiency and has also led to gradually harsher retaliatory measures. This raises the question of the effectiveness of this policy and its geopolitical consequences in the longer term: is it not counterproductive and does it not actually increase insecurity in the world?
On the one hand, mutual dependence reduces the incentive to escalate, because by causing damage to another person, you also harm yourself. On the other hand, dependency increases the feeling of vulnerability and stimulates escalation. How to find the balance between these two opposing stimuli?
Game theory: who’s in charge?
What makes it even more complicated is that there are three main parties involved: the US, China and the EU. With three or more players, coalitions can arise in which parties can switch alliances on self-interested grounds. An example of this is Canada’s emerging reorientation towards China, now that it is experiencing such major problems with the US. But how stable is such a reorientation? For all kinds of reasons, you also see the EU struggling with which parties it should (fully or partially) do business. In some areas, the interests lie with one party, in other areas with the other. All in all, game theory teaches us that with more than two players, the situation becomes more fluid, more unstable and less predictable.
In game theory, a situation must be sought in which none of the parties involved benefits from unilaterally changing their strategy: enough autonomy not to be blackmailed, enough interconnectedness to make escalation too expensive, but that is easier said than done. In any case, it requires a good understanding of the interdependencies and where the real red lines lie that should not be crossed. In addition, and this is even more true if more than two power blocs are involved, it is important to operate within predictable institutional frameworks (such as the UN, WTO, the Paris Climate Agreement). Crucial to finding a balance between the power blocs is also good communication and the realization that we may still need each other in the future (for example in the field of energy, food or climate), so that damaging each other badly today will not pay off tomorrow.
Hopefully, the parties involved will keep in mind the conditions that must be met in order to achieve the stable balance desired by everyone. Such a balance also requires the realization that power and responsibilities must be shared in an interdependent world and that one country should not claim global supremacy as the ultimate policy goal. At least two of the current power blocs are accusing each other of this at the moment.
Nout Wellink has held many positions in international banking and academia and is still very active in this field.
