China and Europe Clash Over the Weaponisation of Rare Earths

Europe Is Standing Up To China. What Could Go Wrong?

• The European Parliament issued a strong response to Beijing this week, formally condemning China’s recent export restrictions on rare earth elements and magnets. Lawmakers described the move as “coercive” and warned that the EU must stand firm against any attempts by China to use its market dominance as a geopolitical bargaining tool.
• China currently mines around 60% of the world’s rare earths and manufactures 90% of the magnets used in products ranging from electric vehicles to missile guidance systems.
• The restrictions announced in April require exporters to secure government licenses, a move China says is intended to regulate materials with potential military applications. But many in Brussels aren’t buying it. As the EU prepares for a high stakes summit with China later this month, rare earths are expected to top the agenda.
• In a symbolic moment, European Commission President Ursula von der Leyen reportedly held up a rare earth magnet at the G7 meeting in June, underscoring Europe’s continued dependence on a single supplier for critical industrial inputs. Lawmakers are now urging the EU not only to accelerate domestic mining and refining projects but also to allocate specific funding and assess minimum stockpile requirements.

Resources Are Now Weapons, Is This Really What We Need?

• What sets these latest restrictions apart from China’s previous economic sanctions is their effectiveness. While past efforts (such as limiting imports of Australian wine or Korean electronics) were politically symbolic, the rare earth measures have had immediate, material consequences, particularly in the global auto industry.
• Within weeks of Beijing’s announcement, automakers from the U.S. to India began warning of potential factory closures. China’s move was likely a key factor in Washington’s decision to roll back planned tariff increases on Chinese goods. This marks a shift in leverage: while the U.S. believed tariff escalation would force concessions from Beijing, it was the strategic denial of critical inputs that forced Washington’s hand.
• China has spent years refining its sanctions toolkit. These new controls aren’t just about restricting exports; they’re part of a broader legal and regulatory framework designed to map out foreign dependencies and pressure points. In some cases, China has even sought to extend these controls extraterritorially, warning companies abroad not to use Chinese materials in products destined for the U.S. defence sector.

We Knew This Was Coming, But Still Weren’t Ready

• Since April, Chinese exports of rare earths and magnets have declined sharply, not only to the U.S. but also to key partners such as Japan, South Korea, and the EU. Indian automakers have already begun scaling back production, and Europe is making rare earths a top diplomatic priority in talks with Beijing.
• While China’s ability to precisely target the U.S. may be limited, given the fungible nature of commodities like rare earth oxides, the broader message is clear: supply chain resilience is no longer optional. Yet many Western manufacturers still operate with dangerously thin inventories, sometimes holding just one week’s supply of critical components.
• What’s most concerning is that this threat is not new. China first cut rare earth exports to Japan in 2011, sending a warning that went largely unheeded. Since then, only modest steps have been taken, South Korea has expanded its reserves, and Japan has invested in Australian mines. But many critical minerals strategies have remained underfunded and under prioritised.

Bottom Line

• This is not just about minerals, it’s about leverage, diplomacy, and preparedness. China’s latest move suggests a new era of economic diplomacy, where access to key inputs is used to shape global policy outcomes. 
• China’s rare earth restrictions aren’t just a passing issue; they show how fragile global supply chains have become. Investors must now treat access to critical minerals as a form of geopolitical premium.
• As Beijing uses resource leverage to shape global behaviour, we expect upward revaluation of Western aligned mining, refining, and magnet production assets, alongside volatility in exposed sectors like EVs, semiconductors, and defence manufacturing.
• At Cordoba, we’re seeking exposure to non China critical mineral supply chains, hedging against supply shocks, and prioritising resilience over short term margin. The era of cheap, reliable Chinese materials is coming to an end, and whatever comes next will reshape how industries plan and where investors look for the next big opportunity. We believe in investing in the future of supply chain independence, as the disruption to global supply chain risk means that what was once a hidden dependency is now a front page economic weapon. Investors who diversify early will benefit the most.