Chinese Export Controls and the Future of the Critical Mineral Supply Chain (Part II)

This article is part two of a two-part series on Chinese critical minerals export controls. In part one, we looked at China’s history of imposing export controls on critical minerals, and key reasons why securing alternative sourcing remains a challenge. In part two, we focus on how China could make its export controls even more restrictive, and what mitigation strategies are available to companies. 

Article Highlights:

• Despite the array of options China has to retaliate against U.S. trade controls, it may hold back because of the potential for a negative impact on Chinese businesses, which would lose access to the world’s largest market. 
• While China’s mineral restrictions have had little impact on U.S. businesses so far, if the Chinese Communist Party (CCP) were to begin imposing more comprehensive due diligence requirements for end-user checks, the export controls could become much more powerful. 
• If China’s export controls get more severe over time, U.S. businesses may need to start considering developing new technologies and designing new parts that don’t require those minerals restricted by China.

While China’s recent export controls may appear to be a newly robust retaliation against U.S. trade restrictions, the reality is that the Chinese Communist Party (CCP) has been responding to U.S. trade measures since 2022. A recent IISS report highlights the ongoing succession of restrictions both countries have engaged in over the past decade-plus. Though China has only had an export control regime since 2020, it has gradually increased the items and companies subject to its restrictions consistently over the course of the past half-decade. 

Data from the past five years strongly indicate that China is most likely to restrict those materials for which it has inherent production, technological, or capacity advantages over the U.S. Additionally, items that can inflict pain on U.S. industry will likely be restricted, too. In the months and years to come, China could implement restrictions on a slew of other categories, including: 

• Rare earth minerals
• USGS-designated critical minerals
• Associated processing equipment
• Electric Vehicles (EV) and EV Components
• Batteries and battery components 

The Economic Concerns That Could Limit Chinese Controls on Critical Minerals 

Despite the array of options China has to retaliate against U.S. trade controls, it may not use all—or even any—of them. This is because while these restrictions impact U.S. industry, they could also negatively affect Chinese companies who’d lose access to the world’s largest market. The CCP has to weigh its geopolitical goals against the need to support the domestic companies that sustain its economy and power its GDP. Given China’s current economic situation, this will not be an easy balancing act. 

China’s economy experienced two decades of rapid growth between 2000 and 2020. As a result of the COVID-19 pandemic and other structural factors, however, the growth rate of China has slowed in the 2020s. Foreign companies have begun to close their factories in China and move to cheaper, less geopolitically risky countries, including Vietnam and Malaysia. In part due to these factors, China’s unemployment rate has risen considerably. 

Increasing consumer consumption, meanwhile—a top priority for many Chinese leaders—has made little progress amidst a current deflationary period to start 2025. All of this is to say that the Chinese economy, while still growing at a reasonable level, is now in a more fragile state than it’s been for some time. Like any country, China will need to carefully toe the line when it comes to balancing the country’s geopolitical objectives with its increasingly precarious economic realities. Many companies, jobs, and revenue streams depend on the U.S.; constricting that relationship could easily exacerbate the country’s economic woes—a highly undesirable outcome the government is undoubtedly working to avoid. 

Given China’s expanding use of export controls, it’s reasonable to assume that the nation will continue retaliating against the Trump administration’s tariffs and other trade measures. As the trade war continues, there are several areas business leaders should watch to indicate how severe the impacts to their mineral supply chain could get. 

Like any country, China will need to carefully toe the line when it comes to balancing the country’s geopolitical objectives with its increasingly precarious economic realities.

Key Export Control Concerns for U.S. Companies 

Though China’s recent export bans on minerals haven’t had a major impact on U.S. companies, those firms should still be monitoring China’s actions carefully. While not every Chinese trade restriction poses a risk to all businesses, there’s a good chance that the current trade conflict will escalate even further, broadening the swath of goods vulnerable to Chinese restrictions. 

As these developments continue, keep an eye on these indicators to help evaluate the risk of sourcing disruptions, as well as longer-term changes to mineral supply chains:

• Intensity of End-User Checks: So far, China’s mineral restrictions have had a minimal impact on U.S. businesses. There may be some very telling reasons for this. A recent Fastmarkets article noted that China’s current definition of “end-user” likely allows significant leeway for goods to be re-exported to the U.S. However, if China were to change its definition of end-user, or begin imposing more comprehensive due diligence  requirements for end-user checks, these restrictions could become far more powerful. If China ever chooses to ramp up enforcement of its end-user checks, there’s a strong possibility that prices and supply of restricted minerals may become significantly less favorable to nations like the U.S.

• Additional Export Restrictions on New Minerals and Other Items: As geopolitical developments continue straining relations between China and the U.S., one key indicator of risk is how China responds to any future tariffs imposed by the Trump administration. Sure, China can continue restricting more minerals and exports to the U.S. But the CCP can also add export tariffs, and impose other trade restrictions that may have a larger impact on the flow of goods into the U.S. Causes for concern in this area include broader swaths of items being restricted; additional barriers like export tariffs; and increased scrutiny of re-exporters and manufacturing companies that rely on Chinese inputs of restricted items.

How Companies Can Mitigate Chinese Critical Mineral Restrictions

• Development of Alternative Sources for Restricted Minerals: The U.S. has already initiated numerous policy directives looking to incentivize the production of many critical minerals, including ones banned for export to America by China. These efforts will face many challenges, though, as there are long lead times to obtain processing equipment (and some Chinese dependency issues), as well as environmental concerns and regulatory hurdles to clear before any minerals are mined. For businesses looking to stay on top of this issue, monitoring mineral supplies outside of China will be a critical datapoint. In addition, executives must evaluate the ongoing risk to supply chains that utilize minerals restricted by China.

• New Technology Developments: Many of the critical and rare-earth minerals that China dominates production in have very specific properties that are difficult to replicate. If these restrictions continue, and supplies outside of China don’t ramp up in a substantive way, businesses will have a strong incentive to start developing new technologies and designing new parts that don’t require minerals restricted by China (but still possess comparable electrical properties). Alternatively, companies may want to determine whether they can use existing alternative parts that don’t use those critical minerals mined and processed in China. 

While China’s recent mineral exports bans have not yet negatively impacted U.S. industry in a serious way, many companies remain vulnerable to any additional Chinese trade restrictions. Because of the power China has over the critical minerals and mining industries, and the Chinese government’s ability to impose more stringent controls at any time, companies need to start understanding the minerals critical to their parts and products. Once they’ve identified their material requirements, they can begin the work of identifying and securing alternate parts—or executing new product designs—that don’t require critical minerals dominated by China. 

Struggling to Identify which China-Restricted Minerals are in Your Supply Chain? Let Z2Data Help

Z2Data offers a variety of out-of-the-box and customized solutions that can help firms identify which of their parts contain restricted minerals like antimony, gallium, germanium, and graphite. Moreover, Z2Data can help companies pinpoint the supply chain stakeholders that may be affected by Chinese restrictions on critical minerals through several key functionalities:

• Part-to Site Mapping
• Comprehensive CMRT Database
• Full Material Declaration (FMD) Analysis

These functionalities can help strategic sourcing professionals recognize potential supply chain disruptions and act proactively to mitigate them. Whether you’re looking to understand the critical mineral exposure in your supply chain or trying to quantify how costs might increase as a result of mineral export restrictions, partnering with Z2Data can help you increase visibility and enhance control.