Earlier this year, China introduced new restrictions on the export of twelve rare earth elements (REs), materials essential to semiconductors, defence systems, and renewable energy technologies.
While the announcement unsettled markets and was subsequently modified, the move follows a familiar pattern in Beijing’s geopolitical playbook: using supply chain dominance to assert influence.
Yet, this strategy is beginning to lose its effectiveness. Each time China deploys export controls as leverage, it inadvertently accelerates global diversification away from its own industries.
The consequence is a fundamental shift in how countries and corporations now think about supply chain resilience. For India, this is not merely a cautionary moment, it has to become an inflection point to define a new model of industrial strength.
Rare earth elements (REs) refer to a group of seventeen metallic elements, the fifteen lanthanides along with yttrium and scandium, that share similar chemical properties and play an indispensable role in modern technology.
Despite their name, these elements are not geologically scarce; their combined abundance in the Earth’s crust exceeds that of several commercially mined metals such as copper.
The challenge, however, lies in the economics of extraction. REs are rarely found in concentrated deposits and are instead dispersed across clays and mixed ores, making their separation chemically intensive, capital-heavy, and environmentally damaging.
Small quantities of specific REs such as neodymium, dysprosium, and terbium dramatically enhance the performance of alloys and magnets, which explains their analogy as “metallurgical spices.”
Although annual global output is modest at roughly 400,000 tonnes, REs are foundational inputs for semiconductors, electric motors, wind turbines, precision manufacturing, and advanced defence systems—an F-35 jet, for instance, requires nearly 500 kilograms of these materials.
Over several decades, China absorbed the environmental burdens that deterred other nations, invested heavily in multi-stage refining technologies, trained large cohorts of specialised engineers, and integrated its RE industry with downstream manufacturing sectors in electronics, energy, and defence.
This integrated dominance spans from university research programmes and talent development to high-end applications such as batteries, engines, robotics, and advanced semiconductors, including ultra-pure dysprosium used in cutting-edge Nvidia chips today.
It is this breadth and depth of capability, not merely the ore deposits, that enables China to influence global supply chains with disproportionate impact.
Given China’s clear strategic approach to REs decades back, in 1992, CCP leader Deng Xiaoping famously announced, “The Middle East has oil, China has rare earths.”
China’s position in the rare earth industry was therefore not only naturally predetermined, but earned by directed investment, capacity building, and decades of patience to do what the rest of the world would not.
While the country holds close to half of global rare earth reserves, its overwhelming dominance stems from strategic state intervention over three decades. By the mid 2000s, China controlled nearly 60% of global RE mining and over 90% of processing capacity.
This was achieved not just through unique technological superiority, but through coordinated subsidies, tolerance for environmental risks, and an integrated policy linking universities, global IP, refineries, and manufacturers.
When the United States Department of Defense increased its equity stake to 14.9% in MP Materials earlier this year, it marked the first serious American effort in decades to rebuild a domestic rare earth capability.
Washington has also supported Australian firm Lynas in establishing processing facilities in Texas, directly countering China’s chokehold on refining.
At the corporate level, leading manufacturers are already adapting. Tesla has announced that its next-generation vehicles will eliminate the need for rare earth magnets altogether. Toyota and European firms have developed alloys that replace scarce heavy rare earths with more abundant alternatives such as lanthanum and cerium.
Each of these responses reflects a single truth: coercive dominance in modern supply chains is eventually self-defeating.
India possesses the world’s sixth-largest rare earth reserves, approximately 1.6 Mn tonnes, and has already begun investing in domestic processing.
Indian Rare Earths Ltd (IREL) is developing a permanent magnet plant in Visakhapatnam, and the National Critical Mineral Mission (NCMM), launched in 2025, has identified thirty strategic minerals vital to India’s long-term economic security.
These are positive developments, yet the country’s vulnerability remains significant. India continues to rely on imports for a large share of its critical inputs, around 70% of pharmaceutical active ingredients, and major dependencies across electronics, EV batteries, semiconductor components, and specialty alloys.
In the event of sustained Chinese export restrictions, domestic production in several high-value sectors could be disrupted.
India’s path forward therefore requires more than resource extraction; it demands a deliberate strategy for industrial resilience, one that is anchored in private enterprise partnerships, accelerated by policy alignment, and supported by long-term public capital.
India’s industrial evolution has historically been PSU-led since independence. While this model delivered basic capacity in energy, metals, and infrastructure, it lacks the agility, innovation, and risk appetite required for the new era of technology-intensive supply chains.
This has worked for each of the other top five global economies, and India must adopt their proven strategies to eliminate its strategic dependencies permanently.
The Production Linked Incentive schemes have successfully stimulated domestic manufacturing across multiple sectors. The next step must be to expand their scope beyond finished goods to include the exploration, processing, and global acquisition of critical minerals. Indian firms should be supported, through fiscal incentives and policy coordination, to secure strategic assets overseas, mirroring China’s early efforts in Africa and Latin America.
India’s PSUs possess balance-sheet strength, technical expertise, and institutional longevity. These advantages should be channelled into co-investments with private firms developing advanced processing and materials technologies. Just as the US Pentagon’s investment in MP Materials catalysed a renewed domestic ecosystem, India can achieve similar results by allowing PSUs to take minority stakes in ventures that strengthen the national supply chain
Licensing procedures for critical mineral exploration remain slow and fragmented. The NCMM should rationalise these processes, reduce approval timelines, and enable transparent data-sharing to attract private capital. There are new technologies available now, from advanced muon tomography to 3D LiDAR, that private enterprise can more rapidly integrate into exploration and mine design. Speed and clarity will be as decisive as capital investment in establishing credibility with global partners.
Rare earths are emblematic of a larger challenge. The world’s major economies are restructuring supply chains across semiconductors, defence systems, and clean energy technologies.
Each of these sectors is capital-intensive, research-dependent, and geopolitically sensitive. As the global order shifts towards “friend-shoring” and “near-shoring”, India’s combination of scale, technical talent, and institutional reliability positions it to become a key node of resilience for democratic economies.
Realising this potential requires sustained collaboration across stakeholders. The state must set the direction and relax unnecessary controls through policy and capital; private industry must drive execution and innovation; and research institutions must develop the scientific base for next-generation materials.
China’s recurring use of export restrictions underscores a deeper vulnerability: dependence on any single nation for critical materials carries systemic risk. For India, the lesson is not merely to diversify away from China but to build a durable architecture of self-reliance, one that blends domestic capability with international partnerships.
These measures will enable India to move from a position of reactive vulnerability to one of proactive self-reliance. As global capital seeks reliable and diversified supply bases, India can emerge as a preferred hub for industrial resilience across sectors that define the re-globalising economy in the 21st century.
China’s strategy may test its limits, but has set a precedence for the other top global economies. The opportunity now lies with nations that combine foresight with execution. By building resilient supply chains through private-sector dynamism and public-sector conviction, India can convert external disruption into enduring strategic strength.