https://thediplomat.com/2025/06/rare-earth-raw-power-how-china-plays-the-carrot-and-stick-game-of-the-century/
China Plays the Carrot and Stick Game of the Century
Beijing is more openly leveraging its control over rare earths, using them both as a stick to pressure geostrategic rivals and as a carrot to incentivize cooperation with partners.
By Xinyue Hu and Meng Kit Tang
June 13, 2025
Rare Earth, Raw Power: How China Plays the Carrot and Stick Game of the Century
Just as oil drove geopolitical tensions in the 20th century, rare earth elements could shape the rivalries of the 21st. These 17 metals – including the 15 lanthanides, plus scandium and yttrium – are essential to modern technologies, from smartphones and electric vehicles to wind turbines, radar systems, and fighter jets. They are the key enablers of the advanced technologies and military capabilities that underpin modern global power.
China accounts for approximately 60 percent of global rare earth raw material production, processes about 85 percent of the world’s output, and manufactures nearly 90 percent of the world’s rare earth magnets. It controls nearly all the refining capacity for heavy rare earth elements such as dysprosium and terbium, which are essential for high-performance magnets.
China dominates this sector not by chance, but thanks to a strategic effort spanning decades. Despite being a latecomer, China steadily overtook the United States. In the 1980s, the U.S. led rare earth production, primarily through the Mountain Pass mine in California. However, strict environmental regulations increased costs, leading to mine closures by the early 2000s. China capitalized on this opportunity by leveraging its relatively lax environmental regulations and extensive state subsidies, reducing its production costs and eventually surpassed the U.S.
By 2025, Beijing is more openly leveraging its control over rare earths, using them both as a stick to pressure geostrategic rivals like the U.S. and as a carrot to incentivize cooperation with states such as Malaysia.
China’s Geopolitical Playbook: Carrots and Sticks
China uses a two-pronged strategy to influence power politics, combining rewards and pressure in what is often called a “carrot and stick” approach. It offers technology transfers and access to resources to countries with relatively stable ties to Beijing, while enforcing export controls and other restrictions on its geostrategic competitors. Using rare earths to advance its geostrategic interests has proven to be relatively effective for China.
China has started extending rare earth partnerships to countries that maintain a neutral stance or avoid siding with the West. In April 2025, it proposed sharing rare earth separation technology with Malaysia, a nation with significant deposits but limited processing capabilities. Kuala Lumpur accepted the offer, seizing the opportunity to advance its industrial capacity while deepening economic ties with Beijing. In June 2025, Beijing stated its willingness to “enhance communication” on strategic minerals and emphasized that it has approved qualified export applications of rare earth in accordance with the law.
As tensions between the United States and China intensify, both sides are racing to secure and build resilient supply chains. In this context, Beijing is likely to increasingly utilize the carrot approach. The intended signal from Beijing is clear: steering clear of alignment with the West can bring tangible rewards – not only access to critical resources vital for national security, but also valuable technological cooperation to support industrial upgrading.
On the other hand, China has imposed rare earth export restrictions on its geopolitical rivals. These sanctions serve as sticks, enabling Beijing to exert pressure on countries that challenge its strategic objectives.
China’s use of rare earths as a geopolitical tool has a longer history. It first weaponized these resources in 2010, when it halted exports of rare earth to Japan for two months amid a territorial dispute. In April 2025, amid the tariff war with the U.S., Beijing introduced new export controls on seven key rare earths and associated magnets, which are essential for defense technology, renewable energy, and automotive sectors.
The global repercussions of China’s rare earth export restrictions have begun to surface. By June 2025, the European Association of Automotive Suppliers (CLEPA) reported that several production lines were halted after exhausting their supplies. Additionally, Japan’s Suzuki Motor suspended production of its flagship Swift subcompact due to China’s rare earth export restrictions.
The U.S. is also feeling the pain of rare earth restrictions. A report from the Center for Strategic and International Studies warns that these constraints will cause disruption to U.S. companies. In June 2025, U.S. President Donald Trump initiated talks with China’s President Xi Jinping, with rare earths reportedly a key focus. However, a potential relief from China is likely to be undermined by U.S. restrictions on sensitive technologies and industries such as semiconductors.
According to the Trump administration, China had committed to lifting the rare earths restrictions after talks in May, only to slow-walk implementation. It’s unclear if the latest agreement reached in London will fare any differently.
The Global Counterplay Still Falls Short
The international community has responded with growing concern over China’s use of the “stick” approach in rare earth policy, but efforts to push back remain fragmented and face significant challenges.
The United States has resumed operations at Mountain Pass, which is the only operating rare earth mine in the U.S. now. A new magnet manufacturing facility in Texas, supported by General Motors, is expected to begin production by late 2025. Additionally, the U.S. passed the Critical Minerals Security Act of 2025, requiring reports on critical mineral and rare earth elements resources globally to secure the U.S. rare earth supply chain.
Australia’s Lynas Rare Earths became the first producer of heavy rare earth outside China. It has commissioned additional processing capacity at a plant in Malaysia to produce up to 1,500 tonnes of heavy rare earths.
However, a major obstacle for the U.S. and the West in replacing China lies in the high environmental costs. Producing one ton of rare earth generates approximately 13 kg of dust, 9,600-12,000 cubic meters of waste gas, 75 cubic meters of wastewater, and one ton of radioactive residue. Furthermore, rare earth ores are often laced with radioactive thorium and uranium, posing severe health risks to workers. Environmental movements and regulatory pressures in the U.S. and other Western countries may hinder rare earth mining projects, as they have done in the past.
Recycling presents a potential game-changer. By recovering rare earth elements from end-of-life products, countries can reintroduce them into the supply chain and reduce their dependence on China. For example, Apple has surpassed 99 percent of its goal to use 100 percent recycled rare earth elements in all magnets. The European Union is also investing in urban mining and e-waste recovery to decrease reliance on mined supply.
However, less than 1 percent of rare earths in electronic waste are recycled globally, due to the limited maturity of recycling technologies. Furthermore, the high costs and logistical difficulties involved in collecting rare earth-rich components from discarded electronics also pose major challenges.
To address supply chain vulnerabilities in essential minerals like rare earths, the United States launched the Minerals Security Partnership (MSP) with key countries such as Australia, India, and Japan. Nevertheless, the MSP has reportedly attracted minimal investment and lacks sufficient technological expertise, raising questions about its effectiveness as a realistic alternative to China’s dominance in this field.
Additionally, a major barrier for these countries to replacing Chinese rare earth supplies is price. The Chinese government has long provided subsidies and promoted oversupply in the sector, making it difficult for alternative suppliers to compete due to reduced profitability. For instance, the price of neodymium-praseodymium (NdPr) dropped by 20 percent between January and July 2024. However, China’s rare earth industry can absorb such losses because the government is willing to sacrifice short-term profits to retain strategic control over these critical materials. This low-profit environment further reinforces China’s dominance in the global rare earth market.
Conclusion: The Future of Rare Earth Security
Rare earths are likely to become an increasingly prominent tool for China to wield both as a stick and a carrot amid intensifying geopolitical tensions. As seen in the ongoing technology rivalry between China and the United States, the competition has expanded into resource-based conflicts, where control over upstream segments of the supply chain – such as in mining – provides significant strategic leverage.
China currently holds a dominant position in the rare earth industry, bolstered by state subsidies and relatively lenient environmental regulations. However, this dominance is not assured in the long term. By 2050, recycling and reuse are estimated to meet 30–40 percent of rare earth demand in the United States, China, and Europe. Although Beijing is expected to maintain a central role in rare earth supply chains in the near term, increasing efforts to enhance circularity of the rare earth supply chain may progressively diminish global dependence on China. Over time, this shift could erode China’s capacity to leverage these materials as instruments of geopolitical influence.
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