China Restrictions Send Countries Scrambling
The US Amps Up Interventionism
The Processing Bottleneck
Looking Ahead to 2027 and Beyond
References
Rare earths aren’t the most visible part of the global economy, but they’ve quite quickly become one of the most contested, as supply chain vulnerabilities and shifting political priorities push them closer to the center of global trade discussions.
Image Credit: Phawat/Shutterstock.com
In a January 2026 trend report on the rare earth market from Wood Mackenzie,1 one major theme jumped out: the grip that China-related geopolitics will hold over the market. As global sentiment shifts away from free trade toward protectionism, the report suggests that 2026 will be shaped largely by national policies, particularly those of the United States and China.
These two nations are engaged in a complex political back-and-forth that is affecting a wide range of markets, and rare earths are no exception. Both countries are striving to assert leadership in this space, given its critical role in national defense and the global technology ecosystem.
China Restrictions Send Countries Scrambling
Last year, China's tough talk on curtailing the export of rare earth materials transitioned into actual policy. The country imposed limits on seven rare earth elements and magnets. Within weeks, China slashed its exports of rare earth magnets from about 5500 to 6500 US tons per month in April 2025 to about 1300 tons in May 2025. While some restrictions were relaxed, China proposed even tighter restrictions that would be implemented this coming November.
Operating on a “just-in-time” sourcing approach from China, the United States and Europe were particularly exposed by the cutoff.2 The United States has countered these moves with an increasingly interventionist approach, shifting from market-led solutions to direct government involvement. A key driver of this shift is a looming January 2027 deadline from the US Department of Defense that will ban Chinese-sourced rare earths from the US defense supply chain at every stage, from mining to refining to magnet production.
In Europe, China’s export reductions are compounded by strict environmental guidelines that make it difficult to establish extraction and processing operations. European nations look to solve this bind in the short term by stepping up recycling activities. In 2026, the European Union is set to propose limits on scrap exports that should fuel rare earth recycling operations and marginally reduce the bloc’s dependence on China.
While the US and Europe are scrambling, Japan has provided a case study for de-risking rare earth trade with China.3 The island nation is better positioned thanks to a 2010 diplomatic dispute that forced it to rethink its reliance on Chinese rare earth materials. Japan enacted policies that cut Chinese imports of rare earth materials from 85 % in 2029 to about 60 % in 2020.
The US Amps Up Interventionism
Given the strategic importance of rare earth materials to the United States, the Trump Administration made the bold move of purchasing a $400 million stake in rare earth producer MP Materials, becoming the company’s largest shareholder. While the move provides stability and lowers risk, it also means MP Materials is compelled to follow US strategic objectives.
The United States has also moved aggressively to make international deals. In 2025, it signed a prominent agreement with Ukraine for rare earth materials, and the US government continues to be on the front foot, making agreements with other nations and producers around the world. In March 2026, the United States signed a letter of intent with Australia's Lynas Rare Earths for a supply agreement.4
The Processing Bottleneck
Despite significant mining activity, a January 2026 report from S&P Global suggests that supply bottlenecks will persist throughout the year.5 Driven by Chinese restrictions, a major bottleneck in 2026 will be limited processing and refining operations.
S&P Global reported that China represented more than 90 % of global processing capacity in 2024. Japan represents the next biggest processing nation, but Chinese trade measures targeting Japan present another bottleneck for buyers looking to get away from China. This midstream congestion means that even as new mines open, the finished materials required for applications will remain in short supply through 2026.
Looking Ahead to 2027 and Beyond
While China appears to have a stranglehold on the global rare earth market, several key developments are anticipated to affect that grip.
In February, a Japanese drilling vessel discovered the first rare-earth-rich sediment in the deep sea, approximately 6000 meters below the Pacific Ocean, near the tiny island of Minamitorishima.3 Prime Minister Takaichi Sanae called it a first step toward industrialized production of rare earth materials in Japan.
In mid-2026, MP Materials is scheduled to commission a heavy rare earth separation facility in California. The success of this commissioning and subsequent ramping up production could determine heavy rare earth supply in the United States and beyond. Furthermore, the recent letter of intent between the US government and Lynas Rare Earths could also spell reduced dependence on China in the near term.
As 2026 draws to a close, the market will be watching to see if China follows through with the broader export limits scheduled to take effect in November. It will also be eyeing any US actions related to the restriction of Chinese rare earth materials from the US defense supply chain, set to kick in in 2027.
References
- Wood Mackenzie. (2026 January). Rare earths: 5 things to look for in 2026. https://www.woodmac.com/reports/metals-rare-earths-5-things-to-look-for-in-2026-150433551
- Oilprice.com. (2026 March 16). The State of America's Rare Earth Supply Chain in 2026 - OilPrice.com Market Commentary. PRNewswire. https://finance.yahoo.com/news/state-americas-rare-earth-supply-120000145.html
- Ariel, E. (2026 February 7). Japan’s Critical Minerals Resilience Didn’t Start in 2010 – or 2026. The Diplomat. https://thediplomat.com/2026/02/japans-critical-minerals-resilience-didnt-start-in-2010-or-2026
- Reuters. (2026 March 15). Australia's Lynas inks US rare earth oxide supply deal. https://www.reuters.com/world/asia-pacific/australias-lynas-inks-us-rare-earth-oxide-supply-deal-2026-03-15/
- Keen, K. et al. ( 2026 January 27). Rare earth supply bottlenecks set to persist in 2026. S&P Global. https://www.spglobal.com/energy/en/news-research/latest-news/metals/012726-rare-earth-supply-bottlenecks-set-to-persist-in-2026
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