Title: Strategic De-risking: G7 and Allied Initiatives to Mitigate Dependence on Chinese Rare Earth Elements
Abstract
The global transition toward clean energy and advanced technologies hinges critically on rare earth elements (REEs), a group of 17 metals essential for manufacturing electronics, renewable energy systems, and defense technologies. China’s dominance in REE production and processing, which constitutes over 80% of global refining capacity, has sparked strategic concerns among industrialized nations. This paper examines the 2026 G7 and allied ministerial meeting in Washington, D.C., where participants discussed strategies to reduce reliance on Chinese REEs. It analyzes the proposed measures, challenges, and implications for global supply chain resilience, emphasizing the balance between cooperation and competition in critical mineral governance.
- Introduction
Rare earth elements (REEs) are indispensable to modern economies, underpinning technologies such as wind turbines, electric vehicles (EVs), and military systems. China’s dominance in the REE supply chain—from mining to high-value processing—has created a strategic vulnerability for other nations. Since the 1990s, China leveraged cost-effective production and lax environmental regulations to capture over 80% of global refining output, often using state subsidies and export controls to maintain market leverage. Recent geopolitical tensions, including China’s 2025 export restrictions targeting Japan, have intensified efforts by the G7 and allies to diversify critical mineral supplies. This paper assesses the 2026 ministerial meeting’s proposals, the feasibility of de-risking strategies, and the broader geopolitical implications.
- Historical Context: China’s Ascendancy and Global Responses
China’s rise in the REE sector began in the 1980s, facilitated by low labor costs, environmental leniency, and strategic investments in downstream processing. By 2010, China controlled ~97% of global REE processing. Other nations, such as the U.S., Japan, and Australia, temporarily halted domestic production due to environmental and economic pressures. In response to supply shocks like China’s 2010 export curbs, the U.S. reopened the Mountain Pass mine in 2017, though it remains export-focused and lacks refining capacity. Similarly, Japan, a major consumer, has sought to reduce reliance on Chinese imports through recycling efforts and partnerships in Vietnam and India.
- The 2026 G7 Ministerial Meeting: Objectives and Strategies
On January 12, 2026, U.S. Treasury Secretary Scott Bessent convened finance ministers from G7 nations (Japan, the U.K., France, Germany, Italy, Canada, and the U.S.) and allies (Australia, Mexico, South Korea, and India) to address REE supply chain vulnerabilities. Key discussions centered on:
3.1. Price Floor Mechanism
Participants explored establishing a minimum price for REEs to deter undercutting by Chinese producers and stabilize markets. This aligns with broader U.S. trade policies in other sectors, aiming to prevent predatory pricing exacerbated by Chinese state subsidies.
3.2. Partnerships for Alternative Supplies
Proposals included accelerating investment in non-Chinese sources through public-private partnerships. Japan’s Ministry of Economy, Trade, and Industry (METI) outlined strategies such as reprocessing spent catalysts and exploring mineral deposits in Southeast Asia and Africa. The U.S. Export-Import Bank and JP Morgan indicated willingness to finance infrastructure projects in allied countries.
3.3. Policy Instruments for Supply Chain Resilience
Discussed tools included:
Tax incentives for domestic refining and recycling.
Trade and tariff protections, such as imposing anti-dumping duties.
Quarantine measures (e.g., export restrictions on unprocessed minerals).
Minimum price setting to counter volatility.
Public financial support, including guarantees for high-risk sectors.
3.4. Strengthening Standards and Governance
Japanese Finance Minister Satsuki Katayama emphasized aligning new supply chains with labor and human rights standards, ensuring ethical sourcing. This reflects growing pressure on corporations to adhere to ESG (Environmental, Social, Governance) criteria.
- Challenges and Feasibility of Proposed Strategies
4.1. Economic and Logistical Barriers
Cost and Time: Establishing new processing facilities requires substantial investment ($500M–$1B per plant) and 5–7 years of planning, posing challenges for near-term goals.
Technological Dependence: Recycling and substitution technologies remain nascent, with breakthroughs needed to recover REEs from waste streams or replace them in high-demand applications.
4.2. Geopolitical and Market Risks
Chinese Retaliation: China could intensify export restrictions or target allied markets with lower-cost, non-essential REE exports.
Fragmented Collaboration: The absence of a joint statement from the 2026 meeting suggests diverging national interests, such as India’s hesitance to antagonize China and Germany’s reliance on Chinese EV components.
4.3. Ethical Sourcing vs. Cost
While standards like labor rights and environmental protections are laudable, they may increase production costs, reducing competitiveness against Chinese suppliers. Balancing ethical sourcing with affordability will be critical.
- China’s Strategic Response and Implications
China has historically responded to supply chain diversification efforts with a mix of coercion and diplomacy. Potential actions include:
Vertical Integration: Boosting domestic demand to absorb excess global supply and maintain pricing control.
Green Diplomacy: Offering “clean” REE processing partnerships to smaller nations through the Belt and Road Initiative (BRI).
Legal Challenges: Arguing against price floors or trade restrictions via the World Trade Organization (WTO).
The G7’s emphasis on “prudent de-risking” over decoupling reflects recognition of China’s enduring role in the global economy. However, sustained cooperation on REEs may require countermeasures against retaliatory policies.
- Conclusion: The Path Forward
The 2026 G7 meeting underscores a paradigm shift in critical mineral governance, prioritizing resilience over interdependence. While immediate challenges—such as high costs and geopolitical friction—persist, the coalition’s focus on public-private partnerships, technological innovation, and ethical standards signals a long-term strategy to diversify REE supplies. Success will depend on political will to sustain investments, harmonize policies, and manage tensions with China. By leveraging alliances and leveraging non-traditional participants like Mexico and India, the G7 may yet mitigate its strategic vulnerability in the race to secure the energy transition.
References
U.S. Department of the Treasury (2026). Statement on G7 Rare Earth Supply Chain Meeting.
Katayama, S. (2026). Speech on Reducing REE Dependence at G7 Ministerial Meeting.
Smith, J. (2025). Rare Earth Elements and the Global Power Shift. Oxford University Press.
World Bank (2024). Critical Minerals for Clean Energy Technologies.
Reuters (2025). China’s Rare Earth Export Policies and Global Implications.