Why China is right and why the West is now paying the price for a historic mistake
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Published on: May 29, 2026 / Updated on: May 29, 2026 – Author: Konrad Wolfenstein
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An eye for an eye with the USA: How China is beating the West with its own sanctions weapons
Escalation in the tech war: How China is using a new raw materials rule to take a stranglehold on global industry
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For years, the West profited from cheap raw materials from the Far East – conveniently outsourcing not only production but also the environmental costs. Now Beijing is presenting the bill. What once began as trade policy has developed into a full-blown geo-economic power struggle. In response to Western sanctions against Chinese technology companies, China is now coldly wielding its near-absolute dominance in critical materials such as gallium, germanium, and rare earth elements as a geopolitical weapon. The strategy has long since gone beyond mere export bans: with new, extraterritorial controls, the People's Republic is directly intervening in global supply chains and Western know-how. This article examines the chronology of a market power systematically built up over decades, explains the uncomfortable logic of the Chinese leadership, and shows why Europe and the USA are trapped in a structural dependency from which moral appeals and short-term subsidies offer no escape.
Sovereignty or blackmail? Why Beijing is right – and why this still puts the West in a bind
Decades in the shadows: How China built its raw materials monopoly
To understand the current debate surrounding export restrictions on critical raw materials, one must look further back than the summer of 2023. The story of China's current dominance in gallium, germanium, rare earth elements, and a dozen other strategically important materials is not a story of chance, but rather a story of deliberate state planning spanning several decades. While Western economies gradually abandoned their own mining and processing capacities in the 1990s and 2000s as a result of globalization—the economic incentive was simply too tempting, as Chinese materials were cheaper—the People's Republic persistently invested in building an unparalleled infrastructure.
The result is well-known, but its implications are still systematically underestimated: China is not only by far the largest producer of rare earth elements, accounting for roughly 60 to 68 percent of global mine production, but also controls the downstream stages of the value chain with overwhelming dominance. Around 92 percent of global rare earth processing facilities are located in China, and 98 percent of the rare earth magnets used in electric motors, wind turbines, hard drives, and military equipment originate from the People's Republic. The dominance is even more pronounced with gallium: China accounts for almost 98 percent of global primary production – of the 430 tons produced globally in 2022, a mere ten tons were manufactured outside the People's Republic. For germanium, China's market share in processing is around 80 to 90 percent.
These figures do not describe a natural state of affairs, but rather the result of a deliberate industrial policy pursued over decades. China has already filed more than 26,000 patents in rare earth-related technologies, thereby establishing itself as a global leader in intellectual property. The fact that the West actively promoted this process by importing cheap materials and externalizing the associated environmental and social costs is a historic decision whose consequences are now painfully evident.
Escalation in stages: The chronology of a strategic disarmament
The escalation of China's export control policy was not abrupt, but followed a discernible logic of escalation – every Western measure provoked a Chinese response. The first significant step was taken by Beijing in July 2023, when the Ministry of Commerce announced that export licenses for gallium and germanium products would be required starting August 1st. Officially justified on the grounds of national security, the real trigger was unmistakable: Washington had further tightened its restrictions on the export of high-performance semiconductors to China just a few weeks earlier. The signal was clear – Beijing was showing the West where its source of raw materials lay.
The immediate market effects confirmed the effectiveness of the measure. Chinese gallium exports collapsed dramatically in the second half of 2023: While 94,399 kilograms of gallium were exported from China in 2022, the amount fell to just 44,747 kilograms in 2023 – less than half. China deliberately accepted a domestic oversupply and kept its warehouses full instead of exporting – a clearly strategic, not market-driven, approach. As industry experts confirmed, the supply situation on global markets remained strained: Exporters had to provide Chinese authorities with detailed information on end users, which systematically prevented the accumulation of stockpiles outside of China.
In December 2024, the next escalation followed: Beijing imposed a complete export ban on gallium, germanium, and antimony to the US – again as a direct response to new US export controls, with which Washington sanctioned 140 more Chinese technology companies. The Ministry of Commerce in Beijing explicitly justified this by stating that the US had politicized and weaponized economic and technological issues. In April 2025, further restrictions were imposed: China introduced export controls on seven rare earth elements – including samarium, dysprosium, and terbium – as well as on permanent magnets, which are essential in the electric vehicle and wind power industries.
The preliminary culmination of this escalation was the October 2025 measures, in which Beijing not only extended controls to five additional rare earth elements, as well as battery materials and graphite products, but also, for the first time, made the transfer of mining and processing technologies, software, technical drawings, and maintenance documentation subject to licensing requirements. With this, China extended its sphere of control extraterritorially for the first time: Products manufactured outside of China that contain at least 0.1 percent Chinese rare earth elements now also require a Chinese export license.
The view from Beijing: Legitimate resistance against Western encirclement
Anyone who examines the current raw materials debate from a Chinese perspective encounters a narrative that is largely coherent internally but deeply uncomfortable from a Western point of view. In China, raw materials policy is not seen as an act of aggression, but as a long-overdue counterattack against a decades-long Western strategy of technological encirclement. Export restrictions are officially justified in Beijing on the grounds of national security – and this justification is not, from a Chinese perspective, a mere platitude, but the core of a deeply ingrained conviction: The country has spent decades creating an unparalleled industrial base through massive state investment, technological development, and securing global access to raw materials.
From a Chinese perspective, it is downright paradoxical that the same Western governments that, since 2022, have been increasingly determined to block semiconductor exports to China, restrict arms technologies, and exclude Chinese companies from accessing US markets, now express outrage when Beijing employs similar instruments in the very field where China actually possesses the resources. The Kiel Institute for the World Economy succinctly summarizes this logic: As a raw material producer at the source, China can dominate the finished goods producers at the end of the supply chain – export restrictions trump import tariffs. China is thus pursuing four discernible objectives: first, identifying vulnerabilities in Western supply chains; second, building leverage in negotiations; third, securing its own resource rents; and fourth, sending a clear signal to Washington about China's strategic counterweight.
Particularly revealing in this context is Beijing's willingness to accept short-term economic costs. The People's Republic is tolerating a domestic oversupply and well-stocked gallium reserves instead of exporting. This is not market-driven behavior, but strategic – a signal that Beijing is not playing the raw materials card out of short-term greed, but rather viewing it as an instrument of long-term geopolitical positioning. Commodities expert Jan Giese from the Frankfurt-based trading house TRADIUM confirmed: "China is deliberately withholding material," which is having a "significant" impact on global availability.
Knowledge as a weapon: The extraterritorial dimension of controls
The October 2025 measures mark a qualitative turning point in China's raw materials strategy, one that has received too little attention in Western discourse. While previous measures primarily targeted the physical export of raw materials, the new regulations explicitly target the transfer of knowledge: technologies and expertise for the extraction and processing of rare earth elements, related software, technical plans, and documentation for maintenance and repair will now be subject to licensing requirements. Beijing aims to prevent other countries from using Chinese know-how to build independent processing capacities outside of China.
What the West perceives as an abuse of monopoly power is, from a Chinese perspective, the protection of a core technological competence built up over decades – comparable to what the US does to protect its semiconductor patents and chip manufacturing equipment. Rolf Langhammer of the Kiel Institute aptly analyzes this dual dimension: China not only wants to control access to rare earths and rare-earth magnets, but also demands that the future use of its rare earths in global supply chains be subject to its prior approval. This is a foreign policy ambition of historic proportions.
The extraterritorial clause—products manufactured outside China but containing Chinese rare earth elements require Chinese export licenses—adopts a tool previously considered uniquely American. The US has used similar mechanisms for years to restrict the transfer of technologies based on US patents or US production facilities. China's extension of this principle to the raw materials sector means that every company worldwide using Chinese rare earth elements or Chinese processing methods is potentially subject to Chinese export control bureaucracy—even before a single kilogram of raw material ever crosses the Chinese border.
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How China is cornering Europe's industry with its raw material power
Between Beijing and Washington: Germany and Europe caught in a dilemma
For German and European industry, the raw materials confrontation is not an abstract geopolitical debate, but an acute operational threat. Germany ceased its own germanium production years ago and is thus dependent on Chinese imports. Ninety-four percent of gallium and the majority of germanium used in Europe come from China. Especially with gallium, which is used in solar cells, semiconductors, and high-performance LEDs, the dependency is structural – rapid substitution is technically and economically unrealistic. Raw materials experts speak of a "strategic deficit on the world markets.".
The export controls imposed in April 2025 on rare earth elements and permanent magnets hit European industry particularly hard because they affected not only raw materials but also finished magnets. These are essential for electric motors in e-vehicles, direct drives in wind turbines, and high-performance motors in industrial manufacturing. Reports from spring 2025 showed that affected German companies had to recalculate their production plans due to the lengthy and unpredictable approval processes at the Chinese Ministry of Commerce (MOFCOM).
For Bavarian and broader European companies, the US-China trade agreement of October 2025 created an additional complication: China granted general licenses to US end customers and their global suppliers – European companies not part of the American supplier network do not benefit from this and still require individual licenses. This means that Europe is relegated to the sidelines in the negotiating theater between Washington and Beijing – heavily affected, but with limited influence on the terms.
Negotiation diplomacy: Measured détente as an instrument of power
A key element of China's raw materials strategy lies not in a total blockade, but in the calculated balancing of opening and restriction. Beijing is not relying on a permanent embargo that would force Western industries to completely substitute their products, but rather on a zone of permanent uncertainty – fluctuating licenses, temporary suspensions following summits, partial relaxations with some trading partners, and simultaneous tightening of restrictions with others. This strategy is rational: A total embargo would spur Western investment in alternative supply chains with maximum urgency; controlled uncertainty, on the other hand, keeps all actors in a state where it seems sensible to continue sourcing from China – because a short-term exit would be more expensive than persevering.
The US-China summit between Trump and Xi in October 2025 is a prime example of this dynamic. China suspended its October export controls on rare earths for a year, ended antitrust investigations against Nvidia and Qualcomm, and offered the prospect of blanket licenses. In return, Washington extended certain tariff exemptions until November 2026. The logic behind the negotiations was clear: whoever plays the raw materials card gets a seat at the table of the great powers – China certainly negotiates, but always from a position where the other side knows what's at stake.
Crucially, even after the suspension of the October measures, older export controls remain in place: the global export restrictions for gallium and germanium from summer 2023, as well as the April 2025 controls for certain rare earth elements, continue to apply. Beijing has therefore not created a genuine easing of tensions, but merely temporarily withdrawn the latest escalation. The system of licensing obligations, end-user controls, and know-how restrictions remains as a structural foundation.
Between resource law and geopolitics: Why fairness arguments fail
One of the most problematic misjudgments of Western policy is to assess Chinese measures primarily from the perspective of international trade law or WTO compatibility. Since 2023, both the US and the EU have been involved in dispute settlement proceedings against China regarding export restrictions on gallium, germanium, and graphite – invoking the WTO dispute settlement mechanism. This litigation strategy overlooks a fundamental fact: China consistently justifies its measures on the grounds of national security – and national security exceptions are virtually uncheckable within the WTO system, as the US has amply demonstrated with its own semiconductor export controls.
What appears unfair from a Western perspective is, from Beijing's point of view, the consistent application of the same power logic that Washington has been employing in the semiconductor sector for years. Under the CHIPS and Science Act, the US mobilized $52.9 billion to selectively restrict Chinese semiconductor capabilities and bring back production capacity. By using ASML export bans, they forced third countries to participate, thereby establishing the principle of extraterritorial technology protection – precisely the principle that Beijing is now applying in the raw materials sector. The moral symmetry that China claims internally as justification is real – even if the geopolitical assessment of this symmetry may differ for both sides.
Rolf Langhammer of the Kiel Institute precisely outlines the overarching logic of the conflict: China wants to exert influence on global industrial transformation processes and thus counter the US; at the same time, as a quasi-monopolist, it wants to defend its control over the global production and distribution of critical raw materials and thereby secure its resource rents. From a Chinese perspective, both the claim to power and the economic rationale are entirely consistent. Moral appeals or demands for fairness do not alter this fundamental structure.
What remains: Structural dependency and the limits of Western resilience policy
Western responses to China's dominance in raw materials have so far focused on three strategies: building alternative supply chains through free trade agreements with resource-rich countries like Australia or the Mercosur states, government subsidy programs such as the US CHIPS Act or the European Critical Raw Materials Act, and diplomatic pressure through trade law instruments. Each of these strategies has real limitations.
Alternative supply chains take time – raw material projects have lead times of ten to twenty years, and even with maximum political prioritization, a structural equalization of Chinese processing capacities within a decade is unrealistic. Ninety-two percent of global rare earth processing facilities are located in China – this cannot be replaced by contracts with Australia, because raw material extraction there alone does not solve the problem of processing infrastructure. Subsidy programs like the CHIPS Act address semiconductor production, not the upstream raw material level. And the WTO approach, as the history of previous disputes shows, is an instrument of slowness in a world of strategic speed.
The honest diagnosis is this: The West has built a dependency structure that cannot be dismantled within the terms of a political mandate. China knows this – and Beijing operates on a different timescale than democratic governments. The People's Republic has spent decades building what it possesses today. From its perspective, its use of this advantage in geoeconomic terms is the logical next step in a state strategy that prioritizes consistency over short-term trade gains. Anyone who believes that temporary licensing agreements and summit diplomacy can alter the fundamental structure of this situation underestimates the magnitude of what is at stake – not only in commodity markets, but in the architecture of the 21st-century global industrial order.
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