China has banned the export of several rare earth minerals to Japan over controversial remarks made by Japan’s Prime Minister regarding Taiwan, marking a new low in deteriorating relationships between the two trade partners. According to a commerce ministry statement on Tuesday, China has banned exports of dual-use items, including certain rare earth elements, to Japan, effective immediately. Dual-use items include technologies, goods or software with both civilian and military applications.
Beijing’s latest move is a reaction to controversial remarks made by Japan’s Prime Minister about Taiwan. In November 2025, Japanese Prime Minister Sanae Takaichi stated that a potential Chinese military attack on Taiwan could legally be considered a survival-threatening situation for Japan, and “a Taiwan emergency is a Japanese emergency, and therefore an emergency for the Japan-US alliance.” In essence, the Japanese PM reiterated a security stance by a previous statement by former Prime Minister Shinzo Abe that Chinese use of force against Taiwan could meet the conditions for Japan to exercise collective self-defense. China regards Taiwan as part of its territory and has demanded that Japan’s PM retract the remarks. However, Takaichi remains adamant, prompting a series of countermeasures by Beijing.
Tokyo has lambasted Beijing’s move, terming the ban on dual-use exports for its military as unacceptable, "A measure such as this, targeting only our country, differs significantly from international practice, is absolutely unacceptable and deeply regrettable," Japan's top government spokesman Minoru Kihara told Reuters.
Japan is the latest country to face the dark side of China's rare earths hegemony, with the country still importing 60% of its rare earths from China despite concerted efforts at diversifying its supply chain. Indeed, Japan is almost totally dependent on China for some heavy rare earths used for magnets in electric and hybrid vehicle motors.
And, the consequences could be dire: Nomura Research Institute economist Takahide Kiuchi estimates that a three-month curb on Chinese exports of rare earths could shave off 0.11% off annual gross domestic product and cost Japanese businesses 660 billion yen ($4.2 billion) while a year-long ban would knock nearly half a percentage point off GDP. China and Japan are major trade partners, with China consistently ranking as Japan's largest trading partner by total volume ever since it overtook the U.S. in 2005, while Japan remains a crucial market for Chinese exports. Their economies are deeply linked through supply chains in areas like electronics, machinery, and vehicles, making them indispensable to each other despite frequent political friction. They also cooperate in areas like green tech, health and energy.
China is rarely shy to flex its REE and critical minerals muscles. The country exerts near-total control over the global rare earths sector, dominating mining (around 70%) and holding a virtual monopoly (over 90%) in crucial downstream processing, refining, and magnet manufacturing, creating significant supply chain vulnerability for high-tech industries like defense, EVs, and AI, despite efforts by other nations to diversify. This dominance stems from decades of state-backed investment and vertically integrated supply chains, giving them power over the entire process from raw ore to finished component.
Like Japan and its western peers, the U.S. is actively diversifying its rare earth supply chain away from China through various channels, including government investment in private companies, international partnerships, expanding domestic mining and processing, and increased recycling. Back in July, the U.S. Department of Defense (DoD) unveiled a major public-private partnership with MP Materials (NYSE:MP) to build a secure domestic rare earth supply chain, involving a $400M preferred stock purchase, a $150M loan for heavy rare earth separation. The Trump administration signed a 10-year commitment that set a $110/kg price floor for NdPr oxide, stabilizing MP's revenue and reducing risk and also guaranteed purchases of 100% of magnets produced by MP's new 10X facility for its first 10 years of operation.
Meanwhile, the U.S. tech sector is increasingly exploring innovative technologies to recover REEs from e-waste. In a recent pilot program, Microsoft, Western Digital, and partners used ADR (acid-free dissolution recycling) technology to successfully recover approximately 90% of rare earth elements (REEs) from hard drives. Instead of using high temperatures or harsh, strong acids, the ADR process uses a selective leaching technique involving a copper salt solution to extract the REEs. The process achieved a greater than 90% recovery rate for the targeted rare earths (including neodymium, praseodymium, and dysprosium) and produced high-purity rare earth oxides (over 99.5% purity). The program processed nearly 50,000 pounds of end-of-life drives from Microsoft data centers, demonstrating its viability at an industrial scale.
On the international front, the U.S. has recently strengthened ties and signed a series of agreements with Australia, Japan, Malaysia, and Thailand to secure and diversify rare earth supply chains, including extraction, processing, and magnet manufacturing. These non-binding frameworks and Memoranda of Understanding (MOUs), signed in October 2025, are part of a broader strategy to reduce dependence on China. The agreements cover the entire supply chain, from raw material to finished products like permanent magnets.
By Alex Kimani for Oilprice.com
