Rare Earth Elements Are So Expensive—and So Monopolized by China—That Smuggling Has Become a Business Opportunity

China is deploying police, customs agents, and spies to stop the smuggling of its increasingly valuable rare earth elements—critical minerals currently under official export embargo.

Why it matters. The Asian giant tightly controls global production of these materials, which are essential to the automotive, technology, and military industries.

Its latest anti-smuggling campaign is worsening shortages faced by U.S. and European companies, which lack short-term alternatives.

Context. On April 4, China cut off legal exports of seven types of rare earth elements and magnets made from them. The move is part of a broader strategy to pressure the U.S. into reducing tariffs on Chinese goods and lifting restrictions on military-grade technology sales.

Historically, smuggling has acted as an escape valve. Before 2010, Chinese organized crime groups trafficked as much as half of the country’s annual output.

According to a report in The New York Times, multinationals such as Boeing, Volkswagen, and Toyota relied on supply chains where legal and illegal production were often intermingled.

More from Xataka On

The U.S. Has a Plan to Counter China’s Dominance in Rare Earth Elements. The Curious Thing Is Where It Will Be Implemented: In a Toxic Pit of Contaminated Water

Behind the scenes. Senior customs, trade, police, and intelligence officials met on May 9 to plan the crackdown. Three days later, representatives from 11 national ministries and seven provinces issued a joint statement declaring that export control of strategic minerals is “related to national security.”

In detail. The new licensing system requires exhaustive documentation and full traceability. Chinese companies must certify who purchases the material and how it will be used at each stage of production, including photographs of the final products.

In addition to stopping smuggling, this data gives the Chinese government a detailed map of rare earth use abroad. It enables officials to identify which companies and countries will produce what—and potentially target them strategically.

The facts. Traditional smuggling routes have become harder to use.

• China has installed motion detector fences along parts of its border with Vietnam, once a porous corridor for illegal trade.
• A small Vietnamese refinery that processed heavy rare earth elements shut down more than a year ago due to tax complications.
• The government has also stepped up surveillance of the steel sector, where rare earth elements were once smelted into beams for covert export.

With shortages worsening outside China and prices soaring, the profits for smugglers willing to take the risk remain high. But new security measures are making the business increasingly dangerous.

Image | Pixabay

Related | China’s Absolute Dominance Over Rare Earth Elements Comes From a Strategy That No One Else Has—Not Even the U.S.