As tensions between the U.S. and China intensify, China appears poised to escalate its rare earth export restrictions, signaling a shift in the U.S.-led tariff war toward a new phase of "mineral weaponization." In response, the industrial sector is scrambling to stockpile materials and secure raw resources in anticipation of potential supply chain disruptions. There is growing consensus within and beyond the industry that reducing dependence on Chinese rare earths and enhancing the government's balanced diplomacy and strategic negotiating power are essential.

According to industry sources on the 23rd, China’s Ministry of Commerce announced earlier this month export control measures on seven types of medium rare earths, including samarium and gadolinium, as well as permanent magnets made from these materials. Notably, Chinese authorities reportedly sent warning letters to Korean firms, stating that any products manufactured using Chinese rare earths and exported to U.S. companies could be subject to sanctions—raising concerns of a “secondary boycott” as the U.S.-China power struggle broadens.

Data from the Korea International Trade Association (KITA) shows that China is the world’s top producer of rare earths, accounting for 69.2% of global output. The International Energy Agency (IEA) estimates that China controls nearly 90% of global rare earth processing and refining. South Korea is highly dependent on Chinese imports for its rare earth needs, with 79.8% of rare earth imports last year sourced from China.

Rare earth elements are critical to future industries such as batteries, advanced weapons, and semiconductors. This has raised concerns across the industrial spectrum, particularly in defense and battery manufacturing. Defense companies may face shortages of rare metals used in aircraft structures and engines, while key battery materials are also vulnerable to supply chain risks. More than half of the 17 rare earths used in secondary battery components are imported from China.

The defense industry is focusing on maintaining appropriate raw material inventories, while domestic battery companies believe their existing reserves will shield them from immediate impact. However, growing volatility in raw material prices is prompting companies to more precisely assess and secure optimal stock levels.

Rare earth prices have surged twice over the past decade. According to Bloomberg, prices spiked to $14,000 per ton in 2011 (approximately KRW 19.8 million), and again to about $11,500 (KRW 21 million) between 2021 and 2022. Both surges were triggered by Chinese export restrictions, raising the likelihood of a similar price hike this time.

The industry is closely watching whether these restrictions will evolve into broader global supply chain realignments. As the U.S. seeks to diversify rare earth sourcing, there is speculation that South Korea may become integrated into America’s strategic supply chain plans.

LS Eco Energy is currently operating a task force—including executives from management support—to pursue its rare earth business, with plans to recruit additional personnel for rare earth trading. POSCO International is aggressively pursuing U.S. rare earth supply deals, having signed a strategic agreement in March with Energy Fuels, America’s largest rare earth company, for the delivery of didymium-praseodymium oxide.

Some experts argue that if substitutes for rare earths are developed over the long term, China’s ability to use them as a strategic weapon will diminish.

Seo Ji-yong, professor of business administration at Sangmyung University, emphasized, “The government must ensure that Korean companies are protected in negotiations with China and should maintain a neutral diplomatic stance whenever possible.” He added, “The U.S. sees value in South Korea strategically when it is able to mediate or negotiate effectively with China. Excessive reliance on the U.S. could weaken our position as a negotiation partner.”

Professor Seo further noted, “Companies must work to enhance their own strategic value, while the government should build trust with China by keeping open channels for negotiation—while also maintaining a smooth partnership with the U.S.”

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