How China Is Weaponizing Minerals, and What You Can Do About It

Article Highlights:

• While it’s been well-known that China dominates production of critical minerals, the Chinese government has slowly been ramping up its tools over the last two years. As a result, today it’s strongly positioned to weaponize its dominant position in the critical minerals mining and processing spaces.
• The reality of China’s control over critical minerals is near-absolute: the nation can choose to simply “switch off” the spigot at any time, with little forewarning or runway for customers to adjust. Making matters worse is that the export licensing process can be opaque, with vague approval criteria and obscure timelines.
• For companies looking to mitigate the risk of critical mineral bottlenecks in their supply chain, the first step is to understand which components have China-restricted minerals in them. Companies can do this by collecting Full Material Declaration (FMD) documents. SCRM platform Z2Data has millions of out-of-the-box FMDs, and the documents can also  be collected via Z2Data-led survey campaigns.

Ford: the Canary in the Coal Mine? 

Earlier this year, Ford made international headlines when it announced in late May that it would be suspending production of the Explorer SUV at its Chicago plant for a week due to a shortage of rare-earth magnets at its factory. This led to the Trump administration springing into action in early June by brokering a deal with China that, among other considerations, granted temporary relief to automakers like Ford by obtaining export licenses for the minerals that Ford needed. In exchange, the U.S. reduced tariffs on China, while also easing U.S. restrictions on Chinese students.  

While this was a much-needed short-term win for Ford, automakers, and other manufacturing industries, buried in the details of the agreement was the fact that the licenses were only granted for six months. This looming expiration of those export licenses sets up the possibility of additional shortages later this year. Moreover, Ford’s CEO has noted that their supply chain around components with these critical minerals is very “hand-to-mouth” as a result of export quotas within the licenses. Ford, in other words, has no way of effectively building up a stockpile of the minerals it needs. 

While it’s been well-known that China dominates production of critical minerals, the Chinese government has slowly been ramping up its tools over the last two years. As a result, today it is strongly positioned to weaponize its dominant position in the critical minerals mining and processing spaces.

What Are Critical Minerals and Rare Earth Elements?  

Since the first major critical minerals export restrictions were announced by China on Gallium and Germanium back in 2024, many supply chain specialists have been scrambling to understand their exposure to critical minerals and rare earth elements (REE). While this task can be exceedingly tedious, the first step is to identify which minerals are considered “critical” and are most susceptible to restrictions imposed by China. To answer this question, most manufacturers utilize two separate lists: the USGS Critical Minerals list and the Rare Earth Elements to identify the minerals most vulnerable to export restrictions in the event of a geopolitical conflict.   

• Critical Minerals: The list most commonly used to define critical minerals in the U.S. is the USGS Critical Mineral list. This list, most recently released in 2022 by the US Geological Survey, identifies 50 mineral commodities that are critical to both the U.S. economy and national security. Among other factors, the minerals on this list are critical for manufacturing and “vulnerable to disruption across the supply chain.” The list includes common minerals, such as gold and silver, and less well-known minerals like holmium and lutetium.  
  

• Rare Earth Elements: rare earth elements (REEs) are a set of seventeen metallic elements used in a wide range of applications from electronics to defense applications to lasers. While these elements are not commonly used in large quantities in most devices, their presence is critical, as they often possess unique properties that are difficult to replace. One misnomer about REEs is that they’re rare. In reality, they occur commonly on the surface of the earth. They can, however, be extremely difficult to extract and isolate in their pure forms.  

There’s some overlap between the USGS Critical Minerals list and REEs, and one common theme among minerals on both lists is China’s dominance in their mining and processing. It’s precisely this control that China is beginning to leverage as it engages in geopolitical competition with the U.S. and European countries.  

How Access to Critical Minerals Is Being Weaponized 

China’s primary method of weaponizing their control over critical minerals and REEs is through restricting access to them—either by informal controls, licensing requirements, outright export bans, or some combination thereof. In recent years, China has ramped up its requirements for export licenses for select minerals, restricting not only companies’ access to critical minerals, but also limiting stockpiling options, as has been the high-profile case with Ford. Licensing requirements also allow for multiple unique forms of leverage, because China can choose to speed up or slow down the processing and approvals of these licenses according to the geopolitical conditions of the moment.    

China’s primary method of weaponizing their control over critical minerals and REEs is through restricting access to them—either by informal controls, licensing requirements, outright export bans, or some combination thereof.

The reality of China’s control over critical minerals is near-absolute: the nation can choose to simply “switch off” the spigot at any time, with little forewarning or runway for customers to adjust. Making matters worse is that the export licensing process can be opaque, with vague approval criteria and obscure timelines. 

Despite these challenges, this is not an unprecedented scenario. In fact, one country and its domestic companies have been responding to this challenge for over a decade, serving as a robust response template for companies and industries looking to reduce their dependence on China for the mining and processing of critical minerals.  

Lessons Learned From China’s First Weaponization of Critical Minerals

While it may seem like China’s critical mineral restrictions have been a recent geopolitical development, the first major case of Chinese export restrictions occurred all the way back in 2010. When Chinese and Japanese fishing boats collided near the disputed Diaoyu/Senkaku islands, Japan took a sailor captive. This tense geopolitical development led China to retaliate by stopping the export of rare earth minerals to Japan. While the restrictions were largely informal, they nevertheless targeted many of Japan’s most prominent industries. Although the situation was eventually resolved after Japan released the captive sailor, there were many radical shifts that occurred in the manufacturing industry in Japan during the time of the restrictions. 

While it may seem like China’s critical mineral restrictions have been a recent geopolitical development, the first major case of Chinese export restrictions occurred all the way back in 2010.

In the immediate aftermath of the crisis, Japanese companies began to stockpile large quantities of critical minerals. This type of response is still in practice today, as many automotive companies in Japan have large safety stocks of critical minerals and related components. Additionally, the Japanese government released a financial aid package to help key Japanese industries finance the stockpiling efforts, and mandated that companies in similar industries work together to promote alternative technologies that were not so dependent on China’s resources. Finally, Japan also accelerated the technology needed to recycle REEs and developed alternative minerals sourced from many countries across east Asia. Over roughly 13 years, these initiatives resulted in a marked dropoff in Japan’s dependence on China for critical minerals, going from 90% in 2010 to 60% in 2023.  

Many of the takeaways from this 2010 crisis are still applicable when dealing with China’s continued leveraging of their critical mineral dominance. 

• Recycling Critical Minerals: A focus on recycling existing critical minerals and minimizing parts that utilize these resources is a must. 
• Stockpiling: Stockpiling remains a viable option for many companies. If industries are able to take advantage of windows of opportunity for obtaining critical minerals, they can mitigate any potential disruptions if access is cut off in the future.
• Developing Alternative Supply Chains: While building non-China supply chains is the ideal resolution to this ongoing issue, one clear challenge is the amount of time required to configure them. 15 years after the Diaoyu/Senkaku Islands crisis, Japan is still highly dependent on China for the majority of its critical minerals. With more countries being affected around the world, it’s possible that new supply chains around critical minerals can be created faster than in the past. In the short-term, however, eliminating products that use critical minerals whenever possible remains the best strategy to reduce risk exposure.  

Reducing Risk Exposure: a Tedious but Critical Process 

For companies looking to mitigate the risk of critical mineral bottlenecks in their supply chain, the first step is to understand which components have China-restricted minerals in them. Companies can do this by collecting Full Material Declaration (FMD) documents. SCRM platform Z2Data has millions of out-of-the-box FMDs, and the documents can also  be collected via Z2Data-led survey campaigns. These documents, crucial to understanding critical mineral dependence, are generally not easily obtained online. 

The next step is understanding the supply chains around the minerals that go into your company’s specific parts. Z2Data can also help here, providing industry-leading supply chain mapping that shines a light into sub-tiers and maps manufacturing networks at the part and supplier level. While most critical minerals are often linked to a Chinese company or another entity within China, there are cases where supply chains for certain minerals may not have a Chinese supplier in them. Suffice it to say, parts manufactured within those supply chains won’t be as risky from a geopolitical perspective.    

After assessing which of their parts have which critical minerals and REEs, companies can then prioritize finding alternate parts or conducting re-designs to reduce China dependencies. While many critical minerals are seeing new developments in both extraction and refining by non-Chinese companies, this progress for many minerals is very slow, and minerals produced without Chinese companies are often more expensive than those mined and refined in China. 

Due to the limited alternatives sourcing for most critical minerals and REEs, the reality for most companies is that removal of components containing restricted minerals may be the best measure against future disruptions. For certain situations, evaluating stockpiling or recycling options is certainly worth pursuing, especially if it would be exceptionally costly and resource-intensive to replace a part because of its critical mineral dependence. 

Ultimately, the main focus for businesses should be on ensuring supply chain stability—something Z2Data’s SCRM capabilities can be an essential partner for achieving. To learn more about Z2Data and how its FMD analysis and multi-tier supply chain mapping can help businesses identify their critical mineral dependencies, schedule a free trial with one of our product experts.