1.     why China imposes export restrictions to rare earths?

China imposes export restrictions on rare earths primarily to secure its strategic interests, maintain economic leverage, and protect domestic industries. Here are the key reasons, based on available information:

China imposes export restrictions on rare earth elements (REEs) for a combination of strategic, economic, and security reasons, often leveraging its dominant position in global production (around 60-70% of mining and 90%+ of processing) to influence international trade dynamics. These measures have evolved over time, with recent escalations in 2025 tied to ongoing US-China trade tensions. Below is a breakdown of the key motivations, drawing from historical patterns and current developments.

### National Security and Dual-Use Concerns

Rare earths have both civilian and military applications, such as in semiconductors, magnets for electric vehicles, and defense systems like fighter jets and missiles. China cites protecting national security as a primary rationale, aiming to prevent the transfer of these materials or related technologies for use in foreign military or sensitive applications that could threaten its interests or global stability. This includes scrutinizing exports to overseas defense users and AI research with potential military ties, while requiring licenses that detail end-uses. The dual-use nature aligns with international practices under treaties like the Non-Proliferation of Nuclear Weapons, but it's applied selectively to curb adversaries' access.

### Retaliation Against Foreign Trade Policies

A major driver is retaliation for US actions, including tariffs on Chinese goods and restrictions on semiconductor exports to China. For instance, the April 2025 restrictions on seven REEs (samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium) directly responded to US tariff hikes, while October 2025 expansions adding five more elements (holmium, erbium, thulium, europium, and ytterbium) countered calls for broader US bans on chipmaking equipment. These moves exploit US vulnerabilities, as America lacks domestic heavy REE processing and relies heavily on Chinese imports, potentially disrupting defense production (e.g., an F-35 jet requires over 900 pounds of REEs).

### Geopolitical Leverage and Bargaining Power

China uses REE restrictions as a tool for economic coercion and to gain advantages in negotiations, such as ahead of the late-October 2025 Trump-Xi summit at the APEC forum in South Korea. This echoes historical precedents, like the 2010 export ban to Japan over a territorial dispute, which caused global price spikes. By controlling technologies for mining, refining, and magnet production, China aims to localize its supply chain, limit global alternatives, and maintain a strategic edge in high-tech and military sectors, where it is expanding production faster than the US.

### Resource Conservation and Domestic Industry Protection

Historically, since the 1990s under leaders like Deng Xiaoping—who equated rare earths to oil in strategic value—China has invested in building a monopoly by accepting environmental trade-offs that deterred competitors. Current restrictions also encourage domestic processing and value-added manufacturing, reducing raw exports while boosting local tech industries. This includes banning exports of extraction and separation technologies since 2023, making it harder for others to develop independent capabilities.

These measures risk global supply chain disruptions but strengthen China’s strategic position.

2.     What are the short term and long-term impact to the world economy?

### Short-Term Impacts (1-2 Years)

China's 2025 restrictions, including April's halt on seven rare earths and October's expansion to 12 elements plus magnets and tech, have triggered immediate supply disruptions, price surges, and retaliatory tariffs (e.g., US 100% duties on Chinese goods from November). These affect high-dependency sectors, potentially shaving 0.5-1% off global GDP growth via inflation and delays.

 ### Long-Term Impacts (3+ Years)

 Restrictions accelerate supply chain diversification but heighten geopolitical risks, fragmenting trade and raising costs permanently. While China's leverage may wane (as alternatives scale), they could slow global tech/clean energy transition by 10-20%, fostering "parallel" economies and adding $200-500B annual costs worldwide. 

Mitigation via negotiations (e.g., June 2025 London deal) could temper effects, but escalation risks deeper decoupling.

3.     What are the possible responses of the affected countries to China’s restrictions?

### Possible Responses to China's Rare Earth Export Restrictions

Affected countries, primarily the US, EU member states, Japan, and South Korea, are responding to China's October 2025 curbs—which impose licensing for exports of 12 rare earth elements, magnets, and related technologies, with bans on defense uses and scrutiny for semiconductors—with a mix of immediate countermeasures and long-term strategies. These aim to mitigate supply disruptions while pressuring China. Responses are coordinated via G7 and bilateral alliances, but face challenges like internal divisions and implementation timelines.

 These responses risk escalation but could accelerate decoupling, with short-term focus on diplomacy/tariffs and long-term on self-sufficiency (e.g., US alternatives may take 3-5 years). Success depends on unity, as seen in prior 2010 Japan cutoff.

4.     Would the recent cooperation between US and Australia in rare earth extraction effective in counter acting China’s restriction?

### Overview of the US-Australia Cooperation

On October 20, 2025, US President Donald Trump and Australian Prime Minister Anthony Albanese signed an $8.5 billion framework agreement to enhance rare earth extraction, processing, and supply chains. Each country commits $1 billion within six months, targeting $53 billion in mineral assets. Key elements include:

- Accelerated permitting for mines and refineries.

- Joint geological mapping, recycling initiatives, and export controls to block adversarial (e.g., Chinese) acquisitions.

- US investments in Australian processing facilities, involving firms like Arafura Rare Earths and Lynas Rare Earths.

- A minimum price floor for minerals to ensure economic viability.

This pact builds on prior alliances like AUKUS and responds directly to China's October 2025 export curbs on 12 rare earth elements and related technologies.

### Effectiveness in Countering China's Restrictions 

The cooperation is a strategic step toward diversification but faces significant hurdles. Australia's vast reserves (second globally after China) and expertise in mining position it well as an alternative, yet China's 90% control of global refining and processing limits immediate impact. Experts view it as an "important first step" rather than a quick fix, potentially accelerating decoupling but not fully offsetting shortages in the near term.

Overall, the deal won't fully counteract restrictions immediately—potentially easing only 10-15% of US shortfalls in 2026—but it lays groundwork for resilience, incentivizing further global efforts like EU-Japan partnerships. Success hinges on execution and multilateral buy-in.

5.     Will China win this “war”?

Whether China "wins" the rare earth "war" sparked by its October 2025 export restrictions depends on the timeframe, strategic goals, and responses from affected countries like the US, EU, Japan, and Australia. Below is a concise analysis of China's prospects, considering its dominance (60-70% of mining, 90%+ of processing) and global counteractions.

 ### Short-Term (0-2 Years): China Holds Strong Advantage

China is likely to "win" in the short term by leveraging its near-monopoly to disrupt global supply chains and exert geopolitical pressure.

 **Supply Control**:

Restrictions on 12 rare earths, magnets, and tech exports cause immediate shortages, spiking prices (e.g., 25% for semiconductors, 15-30% for EVs). The US and EU face delays in defense (e.g., F-35 jets) and tech production, with no quick alternatives.

 **Geopolitical Leverage**:

Curbs pressure the US ahead of the Trump-Xi summit (late October 2025) and force concessions in trade talks, as seen in past crises (e.g., 2010 Japan embargo) 

**Economic Gains**:

China boosts domestic processing, capturing higher-value markets while rivals scramble, potentially adding $50-100B to its tech sector.

**Challenges**:

Retaliatory tariffs (e.g., US 100% duties, EU Anti-Coercion measures) and diplomatic pushback (e.g., G7 unity) may hurt Chinese exports like steel/EVs, risking 0.5-1% GDP growth loss 

**Outcome**:

China's dominance ensures short-term wins, disrupting adversaries and strengthening its bargaining power, though escalation could backfire.

### Long-Term (3+ Years): Victory Less Certain

China's ability to "win" diminishes as global diversification efforts gain traction, but it retains significant influence.

**Diversification Threat**:

US-Australia $8.5B pact, EU investments, and recycling (e.g., urban mining for 20% of demand by 2035) could reduce reliance on China to under 50% by 2030. Mines in Australia, Ukraine, and Canada may cover 20-30% of global needs.

**Sustained Leverage**:

China's cost advantages, integrated supply chain, and tech export bans slow competitors’ progress, maintaining 60-70% market share through 2035. It can still manipulate prices or target specific sectors (e.g., AI, defense).

**Economic Costs**:

Prolonged trade wars and fragmented markets could cost China $100-200B annually in lost exports, while global decoupling raises costs for all, potentially slowing tech/clean energy transitions by 10-20%.

 **Geopolitical Risks**:

Aggressive curbs may alienate allies like Australia, push neutral countries (e.g., India) toward Western blocs, and spur military tensions, offsetting economic gains.

 **Outcome**:

China’s long-term win is uncertain as alternatives emerge, but its head start and scale ensure it remains a dominant player unless rivals achieve unprecedented coordination.

 Conclusion

China is poised to "win" short-term by exploiting dependency, securing concessions, and boosting its industry. Long-term, while it maintains an edge, diversified supply chains and retaliatory measures could erode its dominance, potentially leading to a stalemate where no single party "wins" outright. Success for China hinges on balancing coercion with diplomacy to avoid unifying adversaries, while rivals must sustain costly investments to close the gap.