China's recent move to restrict exports of critical materials to Japan, including rare earth elements crucial for advanced technology and defence, risks undermining its own long-term strategic dominance. The ban, announced by China's Ministry of Commerce, targets all items with potential military applications and is widely seen as a geopolitical tool. However, Japan's extensive preparations over the past decade mean this hammer blow may not land as intended, potentially accelerating a global shift away from Chinese rare earth dependence.
Japan's Decade of Preparation Against Supply Shocks
The roots of Japan's resilience trace back to 2010, when similar Chinese threats first sparked alarm in Tokyo. Since then, Japan has systematically worked to diversify its supply chains and build substantial stockpiles. According to UBS SuMi TRUST Wealth Management, while China produces roughly 80% of the world's neodymium magnets, Japan manufactures about half of the remaining global output. This is a significant feat for a nation that accounts for only about 5% of worldwide manufacturing.
This foresight left Japan relatively unscathed during the last major disruption. In 2025, during trade disputes triggered by former US President Donald Trump's tariffs, China tightened rare earth exports. While Washington was forced into negotiations, Japanese operations like Shin-Etsu's magnet factory continued at full capacity, as reported to investors in July 2025. The pain was felt more acutely elsewhere; European auto-parts makers saw only a quarter of their export licence requests processed, and Indian companies like TVS had to manage "on a daily basis" by drawing down local stocks for products like the electric iQube scooter.
The Global Renaissance in Rare Earth Production
Far from cowing the world into submission, China's aggressive use of rare earths as a political tool has ignited a worldwide effort to break its monopoly. Following Japan's lead, new facilities are emerging across the globe. Canada's Neo Performance Materials built a magnet plant in Estonia in just 500 days, opening in September 2025. Belgium's Solvay has advanced production lines in France, moving from neodymium and praseodymium to rarer samarium, with dysprosium and terbium output slated for 2026.
This diversification is spreading to every continent, with projects in the US, France, South Korea, India, Malaysia, Australia, Germany, Brazil, and Angola. Although these facilities are complex and often require government support, they are far easier to establish than the most advanced semiconductor supply chains, making rare earths a weaker instrument of statecraft than Beijing might believe.
Persistent Vulnerabilities and Long-Term Consequences
Despite progress, challenges remain. Japan still sources approximately 70% of its rare earths from China, according to a Japanese government agency. Efforts by companies like Japanese-funded Lynas Rare Earths have broadened supplies for elements like neodymium but have been slower for harder-to-obtain samarium, dysprosium, and terbium.
The long-term consequence of China's strategy, however, appears self-defeating. By openly flexing its control over critical minerals, Beijing has inadvertently motivated a global production renaissance. This shift will likely erode its market dominance and geopolitical leverage. As analysts often cite former Chinese leader Deng Xiaoping's words, "The Middle East has oil; China has rare earths." Yet, a more pertinent adage also attributed to him might be: "Hide your strength, bide your time." In revealing its hand so clearly, China may have weakened its position for the future, proving that even the most potent tools can break when overused.
