IMF: China Too Dominant in Rare Earth Minerals, World on Brink of Danger

Rare earth metals, though less prominent than commodities like oil, coal, or nickel, play a vital role in the current global economy. These metals are used in various strategic industries, from electric vehicles and renewable energy to semiconductors, electronic devices, and defence systems. One of their most important applications is in permanent magnets, which are key components that convert electrical energy into motion and vice versa. In general, rare earth metals consist of 17 elements, namely 15 lanthanide elements plus scandium and yttrium. Although used in relatively small quantities, these elements possess chemical and physical properties that are crucial for many modern technologies. However, the rare earth metals market is relatively small compared to other major commodities. The market value of rare earth oxides in 2024 is estimated at only around US$6 billion, while the permanent magnet market reaches about US$25 billion. Yet, behind this small market size, rare earth metals serve as essential inputs for many high value-added industries. Therefore, even minor disruptions in their supply can trigger far-reaching chain effects on the global economy. China’s Export Restrictions Raise Global Alarm The world’s concerns about rare earth metals have intensified in recent years, particularly after China began tightening exports of these commodities. According to the International Monetary Fund’s World Economic Outlook report for April 2026, in April 2025, following the United States imposing large tariffs on many trading partners, China introduced export licensing requirements for seven types of rare earth metals and rare earth-based magnets. This policy triggered serious supply disruptions for many producers in various countries. The IMF notes that China’s exports of permanent magnets fell by around 70% year-on-year in May 2025, indicating a sharp global supply slowdown, though it was not long-lasting. Subsequently, in October 2025, China announced further tightening of export licensing rules for rare earth metals, before partially suspending some policies in November as part of an agreement with the United States. Even in January 2026, China is reported to have restricted exports of heavy rare earth elements (HREE) to Japan. The problem is that the world remains heavily reliant on China in the rare earth supply chain. For light rare earth elements (LREE), China’s mining production share has indeed declined from 97% in 2010 to 58% in 2024. However, China’s dominance remains very strong in the processing stage, with around 88% of global oxide separation capacity and 93% of metal refining. For HREE, China’s dominance approaches monopoly, from mining, separation, refining, to permanent magnet production. This is where the main issue lies. The most vulnerable point in the rare earth supply chain is not just mining, but the separation and refining processes. These stages are highly complex, expensive, require specialised expertise, and cannot be built quickly. The Impact Extends Beyond Factories to GDP Rare earth supply disruptions do not only affect one or two industries but can spread to the broader economy. The IMF explains that rare earth metals are used in 34 of the 405 economic sectors in the United States. Those sectors contributed added value of around US$233 billion in 2017, equivalent to 0.8% of nominal US GDP. Similar exposures are seen in other countries, such as France at 0.4%, Germany at 2.5%, India at 1.3%, Japan at 1.7%, and the UK at 0.6%. This means that rare earth metals are not major commodities in terms of market value, but their presence supports activities in many key sectors. If their supply is disrupted, the impact could extend to the automotive, electronics, renewable energy, and other high-tech manufacturing industries. The IMF illustrates that if permanent magnets become scarce, electric vehicle production could be disrupted. From there, the effects could spread further to transportation costs, production costs, and economic activities in other dependent sectors. In an IMF simulation, if rare earth supply is cut by 80% and businesses have limited substitution options, the economic impact could be significant. The US gross domestic product is estimated to fall by 1.5%, while Germany’s could drop by around 1.2%. The magnitude of this impact is also influenced by inter-sectoral linkages in the economy. When one sector is disrupted, the pressure does not stop there but spreads to other sectors through supply chains and production networks. However, the IMF also emphasises that such impacts could be much smaller in the long term if producers have time to adapt, find alternatives, or redesign their production. In scenarios with higher substitution elasticity, the average GDP decline becomes nearly insignificant. The problem is that such adaptation capabilities are not easily achieved quickly, especially for industries heavily reliant on specific rare earth metals without equivalent substitutes.