(Jan 7): China’s warning to Japan that it could choke off supplies of rare earths, its favourite weapon in trade conflicts, targets a persistent vulnerability among Japanese manufacturers after more than a decade of Tokyo trying to reduce reliance on its rival.
Beijing is mulling stricter controls on licences to ship the minerals to Japan, the state-owned China Daily reported on Tuesday evening, citing an unidentified person, as the row worsens between the two countries over remarks the Japanese Prime Minister made last year on Taiwan.
The affected materials would be the same seven elements that China restricted in April in response to the trade war launched by the US.
Since 2010, when China banned rare earths supplies to Japan as part of a territorial dispute, Tokyo has made some progress in building up a supply chain outside China.
In particular, the Japanese government and industry bankrolled the expansion of Australia’s Lynas Rare Earths Ltd, one of the few Western miners and processors of the minerals. In 2024, a former minister told Bloomberg that Japan’s dependence on China for the full suite of 17 rare earths had fallen to 60% from 80%-90%.
The China Daily’s report followed an official announcement from the government banning the sale of more than 800 dual-use items to the Japanese military, or to end-users that could aid the country’s military capabilities — a category that would usually cover rare earths.
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The threat to expand restrictions to civil customers once again highlights how so-called heavy rare earths, used as essential ingredients in powerful magnets, remain a key pressure point. Lynas only started shipping those elements, particularly dysprosium and terbium, in relatively small volumes to Japanese customers late last year. Supply otherwise hinges almost entirely on China.
Share in Lynas, the linchpin of Japan’s diversification strategy, rose as much as 16% in Sydney on Wednesday.
Rare-earth magnets are ubiquitous across modern manufacturing, from cars to mobile phones and missiles. China’s squeeze on supplies was crucial to Beijing’s success in pressing the Trump administration to enter trade talks that ultimately led to a truce between the two nations.
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Still, Japan is now in a better place to fight any disruptions, compared to its own circumstances in 2010 and the US situation last year. The country has its own magnet producers, its manufacturers have been encouraged to build stockpiles, and its industries have been working to specifically reduce their reliance on heavy rare earths.
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