China’s Trump card: using rare earth elements as geopolitical bargaining chips

Rising Tensions in Myanmar: Rare Earth Supply Chain Disruptions Impact Global Markets

Months of escalating conflict between the Kachin Independence Army (KIA) and Myanmar’s military junta have sent shockwaves through global rare earth markets, threatening critical supply chains for industries ranging from electric vehicles to wind turbines.

The crisis began last October when KIA rebels seized the northern border town of Pangwa, consolidating their control over Myanmar’s Kachin State—home to nearly half the world’s supply of heavy rare earth elements (REEs). These critical minerals are essential components in high-tech manufacturing, particularly for magnets used in electric motors, renewable energy, semiconductors, and defense technology.

The impact of this territorial shift has reverberated through boardrooms and government offices worldwide. In June, Ford Motors CEO Jim Farley revealed the company had been forced to close a plant due to rare earth shortages. Toyota and General Motors executives similarly warned the White House about supply disruptions threatening production lines.

“The cessation of imports could jeopardize not only global supply chains but also the stability of China’s domestic industries,” explains Isabel Al-Dhahir, principal analyst at GlobalData. The significance of this regional conflict extends far beyond Myanmar’s borders, particularly affecting heavy rare earths markets.

China, which processes nearly 90% of global REEs despite holding about 44 million tonnes in reserves, has responded by closing trading posts along the Myanmar border. The move effectively weaponizes China’s dominant position in rare earth processing to pressure the KIA. According to Reuters, Chinese foreign ministry officials delivered an ultimatum to the rebel group in July: abandon their offensive into the strategic town of Bhamo or face complete economic isolation.

This geopolitical maneuvering occurs against the backdrop of Myanmar’s deteriorating economic situation, already plagued by intensifying conflict, natural disasters, and deepening poverty. The International Energy Agency (IEA) notes that “China and Myanmar together account for around two-thirds of global mined supply of heavy rare earths,” with China controlling approximately 90% of global refined heavy rare earth production.

While limited trade resumed in March, the IEA’s Global Critical Minerals Outlook predicts that “if the conflict in Myanmar continues, it could lead to a price increase for the medium and heavy rare earths,” though the impact on light rare earths would be relatively limited.

The Myanmar situation represents a microcosm of China’s willingness to leverage its dominance over REE processing and refinement for geopolitical advantage. This strategy became evident during recent trade tensions with the United States, when China implemented export controls on seven types of rare earths—including dysprosium, terbium, and yttrium—in response to the Trump administration’s tariffs.

The reciprocal tariff battle escalated rapidly in April, with U.S. tariffs on Chinese goods reaching as high as 145% while China’s reached 125%. Although a temporary reduction was agreed upon by May 12, reports indicated that China maintained its restrictions on REE exports despite promises to the contrary.

U.S. Commerce Secretary Howard Lutnick later claimed that China had agreed to “deliver rare earths to us,” but analysts remain skeptical about the consistency of such trade policies. “The sporadic nature of Trump’s trade policies and resulting retaliations adds an extra layer of uncertainty to US manufacturers, with some planning month to month,” Al-Dhahir notes.

The United States, recognizing its vulnerability in the rare earths supply chain, has begun taking steps to reduce dependence on Chinese processing. Currently, the Mountain Pass mine in California represents the only operational rare earth mine in the U.S., accounting for approximately 15% of global rare earth mining.

In a significant development, Apple announced a $500 million investment in MP Materials, the company operating the Mountain Pass mine. This investment will secure U.S.-made rare earth magnets from MP’s factory in Fort Worth, Texas, and develop a rare earth recycling facility at Mountain Pass.

Despite these efforts to diversify supply chains, China’s dominance in rare earth processing appears secure for the foreseeable future. As Al-Dhahir observes, “The prevalence of REEs across so many industries makes them indispensable. Rare earths therefore constitute a significant component of China’s geopolitical toolkit.”

The current tensions surrounding Myanmar’s rare earth resources reflect a strategic philosophy dating back to the 1980s, when then-President Deng Xiaoping compared the importance of rare earths to China to the significance of oil for the Middle East. As conflict continues in Myanmar’s resource-rich regions, the global implications for technology supply chains and international relations will likely intensify.