China's ace in the hole

China has a powerful tool, and it has already used it. In September 2010, after Japan detained the captain of a Chinese trawler near the disputed Senkaku/Diaoyu islands, rare-earth shipments to Japan were held at Chinese ports by customs checks for nearly two months. Beijing denied any embargo. But Japan, which bought most of its rare earths from China (82% in 2010, by Japanese customs data), felt it at once: its factories had no other supplier. Japan announced the captain's release on 24 September, three days after the shipments stopped; whether the pressure was the reason is still debated, but the lesson was clear. The United States and Europe watched with alarm, and in 2012 they and Japan took China's export restrictions to the WTO.

In 2025 China used the same tool against a bigger target. In April, in the middle of the tariff war, it required export licences for seven rare earths and the magnets made from them, and carmakers in the United States, Europe and elsewhere had to cut output or temporarily shut factories; in Europe, prices rose to as much as six times those in China. In October it widened the controls. Within three weeks Washington agreed to a truce: the United States halved its fentanyl tariff on Chinese goods, from 20% to 10%, and China suspended the new controls until 10 November 2026; the two governments have since agreed to stretch their truce to 10 January 2027. The April licences are still in place, and the tool is still in use: since January 2026, after Prime Minister Takaichi's remarks on Taiwan, China has barred dual-use exports to Japan's military, and according to Chinese customs data no dysprosium or terbium oxide has been shipped directly to Japan this year.

That is China's ace in the hole. Our predictor lets you play Beijing: cut supply to a Western buyer and see who could fill the gap.