China flexes its rare earths dominance, again

China’s new case-by-case licensing regime for exports of rare earths extends to products and technologies containing over 0.1% Chinese rare-earth content. This is short of a formal export ban, but restrictive enough to function like one in practice.

What you will learn:

• The new rare-earth controls mark a pivot from raw material oversight to technological leverage, and are likely a response to the US’s expansion of its own export control regime last month.
• The timing of the announcements ahead of the touted meeting between presidents Xi Jinping and Donald Trump later this month suggests tactical positioning, rather than escalation.
• However, if implemented, even partial disruption of rare earth supply chains would echo across markets. Our modelling suggests a shock akin to the early-2020s supply snarls could trim US growth by around 1ppt and China’s by 0.4ppt over two years, which is a lower-bound estimate. The market shock would be even larger, with inflation and risk premia rising sharply.