The International Energy Agency (IEA) has warned that if China fully implements its widened export restrictions on rare earths, about $6.5 trillion of downstream production located outside China would be at risk of supply disruption.
China, the dominant global producer of rare earths, expanded export controls in October last year to include additional materials and introduced new licensing requirements. The government subsequently agreed to postpone the measures for one year, but the IEA’s Global Critical Minerals Outlook finds substantial potential exposure should the restrictions take full effect.
Rare earths comprise 17 metals that are typically used in small quantities yet are critical inputs for a wide range of equipment and systems. The IEA’s analysis cites the automotive, high-tech, defence and energy industries as sectors that could see roughly $6.5 trillion of production outside China exposed to supply interruptions if the controls are enacted in full.
The report notes that the United States and Europe together would account for nearly half of the economic impact identified. The IEA’s Executive Director, Fatih Birol, summarised that "Our latest analysis shows that vast amounts of economic value depend on relatively small volumes of critical minerals, whose supply chains remain highly concentrated and are therefore vulnerable."
In parallel, the IEA flagged risks from China’s planned export controls on graphite, a material essential to electric vehicle batteries that was announced at the same time as the rare earth measures and later postponed. The agency estimates that full implementation of the graphite restrictions could put about $300 billion of downstream production outside China at risk. The report underlines that China accounts for more than 90% of global processed graphite output.
Governments in Western economies have been attempting to create alternative supply chains for critical minerals. According to the IEA, public financing commitments for new projects rose to $65 billion between 2023 and 2025, a more than fourfold increase. These commitments are intended to support new capacity and processing outside of China.
The agency highlights that newly operational rare earth refining projects in the United States and Malaysia helped reduce China’s share of the global market to 85% last year, down from 90% in 2023. The IEA adds that if planned projects proceed according to schedule, China’s market share could fall further to 70% by 2035.
By drawing attention to the concentration of processing and the relatively small physical volumes behind large economic values, the IEA’s report frames the current situation as one of systemic vulnerability. The data point to significant potential exposure for manufacturers and industries that rely on critical minerals refined outside China.
Summary
- Full implementation of China’s rare earth export restrictions could place about $6.5 trillion of downstream production outside China at risk.
- Planned graphite controls, if applied, could threaten around $300 billion of production outside China; China produces over 90% of processed graphite.
- Public financing to diversify critical mineral projects rose to $65 billion between 2023 and 2025, while new refining projects have begun to reduce China’s market share.
Key points
- The sectors most affected include automotive, high-tech, defence and energy, with the U.S. and Europe bearing nearly half of the economic exposure.
- China expanded rare earth export controls in October last year and delayed their implementation for one year.
- New refining projects in the U.S. and Malaysia reduced China’s share of the rare earth market to 85% last year from 90% in 2023; planned projects could lower it to 70% by 2035 if they proceed on schedule.
Risks and uncertainties
- Whether the postponed export controls are implemented in full remains a key uncertainty; full implementation would materially increase exposure for downstream industries.
- Supply concentration, particularly China’s dominance in processed graphite and rare earths, creates vulnerability for industries reliant on these inputs.
- The pace and scale of project-financing and the successful completion of planned non-Chinese refining capacity will determine how quickly market exposure can be reduced.