China is overplaying its rare-earth hand in Japan

Core Insights - Beijing's latest strategy in its dispute with Tokyo involves an immediate ban on exports of items with potential military applications to Japan, particularly targeting rare-earth magnets [1][13] Industry Impact - Rare-earth magnets, made from neodymium and praseodymium, are crucial components in various technologies, including electric vehicles and missile-guidance systems [2][13] - Japan has prepared for such supply chain disruptions by diversifying its sources and building stockpiles, reducing its vulnerability to China's threats [3][8] Supply Chain Dynamics - Despite Japan's efforts, it still relies on China for approximately 70% of its rare-earth supplies, indicating a significant dependency that could be problematic in the face of export restrictions [8] - Previous instances of China's export restrictions have not severely impacted Japan, as it has maintained production capabilities, such as those at Shin-Etsu Corp.'s magnet factory [5][13] Global Production Trends - China's actions have inadvertently spurred a global increase in rare-earth production facilities across multiple continents, including the US, Europe, and Australia, which may dilute China's dominance in this sector [9][10] - New facilities, like those established by Canada's Neo Performance Materials in Estonia and Belgium's Solvay SA in France, are beginning to produce rare-earth magnets and elements, indicating a shift in the global supply landscape [11][12] Geopolitical Implications - The complexity and often unprofitability of rare-earth facilities suggest that while they are easier to establish than advanced semiconductor supply chains, they may not serve as effective geopolitical leverage for China in the long term [10][12] - Analysts note that China's overt control of critical minerals has prompted rival nations to develop their own production capabilities, potentially weakening China's strategic position [12][13]