Fifty Percent Below: China's Heavy Rare Earth Exports Have Not Recovered Despite the Trade Truce, and the November Deadline Is Now the Critical Variable

Introduction

The most consequential test of the US-China trade truce is not being conducted in tariff schedules or at diplomatic summits. It is being conducted in customs data, and that data is unambiguous. Chinese exports of yttrium, dysprosium, and terbium remain approximately 50% below the levels recorded in the twelve months prior to April 2025, when Beijing introduced licensing controls on seven medium and heavy rare earth elements in direct retaliation for President Trump's Liberation Day tariffs. The truce, formalized at the APEC summit in Busan in late October 2025, suspended only the additional controls introduced on October 9, 2025. The April framework has never been paused, and the physical evidence confirms it has never stopped biting.

The downstream consequences are no longer theoretical. Aerospace manufacturers in the United States report shortages of yttrium severe enough to force temporary production pauses. European defense contractors cannot secure magnets for missile guidance systems. Japan received only 4% of its prior twelve-month dysprosium import volume, and Reuters confirmed zero shipments of gallium, dysprosium, terbium, or yttrium to Japan in June 2026. Germany reportedly received no dysprosium at all. The IEA has estimated that full implementation of China's rare earth export controls could place USD 6.5 trillion in downstream production outside China at risk.

Three policy developments have compounded the supply disruption since it began. China's January 2026 Export Licensing Catalogue expanded controls to include samarium, gadolinium, and lutetium compounds, closing gaps that downstream buyers had not fully understood were open. State Council Order No. 834, signed on March 31, 2026, established the first dedicated supply-chain security framework integrating export controls, countermeasures, data security obligations, and investment screening under a single national security mandate. And the November 10, 2026 expiration of the suspension on the October 2025 measures, including their extraterritorial provisions, now represents the most significant near-term inflection point for global supply chains in the critical minerals complex.

The Data the Truce Has Not Changed

Chinese customs figures establish the baseline with precision. In the eight months between April 2025 and December 2025, China exported just 17 tonnes of yttrium to the United States, against 333 tonnes in the equivalent pre-restriction period. By February 2026, monthly exports had recovered to 20 tonnes, still well below the 66 tonnes recorded in January 2025 alone. At the aggregate level, China's global exports of less-processed rare earths fell to 4,392 metric tonnes in December 2025, 15.8% below the 2025 monthly average of 5,215 metric tonnes.

The price data tells the same story with greater force. Argus figures show dysprosium and terbium prices outside China rising four to five times since April 2025. Yttrium oxide, which traded in single digits per kilogram before the controls, hit nearly USD 1,100 per kilogram by May 2026, a multiplication of price that reflects genuine physical scarcity rather than speculative positioning. Dysprosium oxide reached approximately USD 1,450 per kilogram; terbium oxide approximately USD 4,500 per kilogram. Manufacturers purchasing permanent magnets are paying between 1.5 and 3 times pre-control pricing for finished components.

Licensing approval rates provide a third dimension. China's export control architecture operates through fixed whitelists of approved exporters, with 44 firms authorized for silver, 15 for tungsten, and 11 for antimony. Even firms on these whitelists must obtain individual shipment licenses subject to nominal 45-day review windows that routinely extend without resolution. For European firms, licensing approval rates have fallen below 25%. Andrew David, senior vice president at the Silverado Policy Accelerator, summarized the picture in January 2026: "The supply of certain export-controlled compounds and metals remains a concern as we enter 2026, as recent export data show volumes remain below historical levels and that exports are going to a more limited number of countries than before the April export controls."

David Merriman, research director at Project Blue, was similarly direct: "The ex-China market will continue to face bottlenecks in the supply of HREE products over 2026 and 2027 as alternative suppliers of HREEs are constructed and commissioned." Merriman identified yttrium, lutetium, terbium, and dysprosium as the key elements facing disruption, flowing into magnet manufacturing, aerospace components, and electronics supply chains.

What the Truce Covered and What It Did Not

The architecture of the October 2025 trade stand-down is worth stating precisely, because the gap between diplomatic description and legal reality is where the supply disruption lives. At the APEC summit in Busan on October 30, 2025, and over the following ten days, China and the United States formalized a mutual suspension: Beijing suspended its October 9 measures until November 10, 2026, and Washington's Bureau of Industry and Security suspended the Affiliates Rule for the same period. The Trump-Xi Beijing summit in May 2026, at which rare earths were the most closely watched agenda item, produced no confirmed rare earth deal before the president departed on May 14.

The October 9, 2025 measures that were suspended covered five additional elements: holmium, erbium, thulium, europium, and ytterbium. They also introduced controls on the export of separation and magnet-making technology itself, and crucially, they introduced extraterritorial reach: a requirement that foreign entities obtain Chinese licenses when exporting certain controlled rare earth elements from one country to another, even when no party to the transaction is located in China. That extraterritorial architecture has been suspended, not eliminated, and it expires on November 10.

The April 2025 controls, covering the original seven elements including terbium, dysprosium, yttrium, samarium, gadolinium, lutetium, and scandium, have never been subject to any suspension. The general licenses that MOFCOM began issuing to approved Chinese exporters in December 2025 supplement the control framework rather than replace it, and the White House's characterization of those licenses as representing a de facto removal of controls is one that Beijing's official communications have not confirmed. Defense and aerospace applications remain explicitly excluded from the general license mechanism. CSIS was unambiguous in its assessment published in May 2026: "These export patterns show that even if China continues to suspend its export restrictions going into 2027, it is not a reliable export partner to the United States during times of heightened geopolitical tensions."

January 2026 Catalogue Expansion and State Council Order No. 834

Building on my analysis of the November 2026 enforcement deadline and the structural gap between Western refining capacity and policy ambition in July 2026, the legislative acceleration since October 2025 deserves detailed examination as a coherent architecture, not a series of discrete announcements.

The January 1, 2026 update to the Export Licensing Catalogue added controls on samarium, gadolinium, and lutetium compounds under an expanded Item 22 with more granular classifications for mid-to-heavy rare earths. These are not marginal elements. Samarium-cobalt magnets underpin aerospace guidance systems and high-temperature motor applications. Gadolinium is essential for MRI contrast agents and neutron radiography. Lutetium compounds appear in PET scan detectors and specialty catalysts. Their addition to the controlled list means that the January 2026 catalogue, combined with the April 2025 Announcement 18 framework, now covers the full range of commercially significant heavy rare earth compounds. Announcement 18 itself has not been suspended; it sits permanently within the control framework and continues to trigger licensing obligations for both Chinese exporters and foreign purchasers.

State Council Order No. 834, signed by Premier Li Qiang on March 31, 2026 and effective upon publication, represents a qualitative escalation in the legal architecture. In eighteen articles, the Provisions on the Security of Industrial Chains and Supply Chains establish the first dedicated administrative regulation in Chinese law specifically targeting supply-chain security risks. The instrument integrates export controls, countermeasures, data security obligations, and investment screening under a unified national security mandate, creating compliance obligations for every organization and individual within Chinese territory.

The compliance exposure for foreign firms is direct and operationally significant. Article 13 of Decree No. 834 prohibits investigative or information-gathering activities concerning industrial or supply chains by foreign entities without approval. On April 7, 2026, the day companion Decree No. 835 took effect, a routine procurement action, specifically asking a supplier in China for its bill of materials, became potentially illegal. MOFCOM issued implementing measures for Decree 834 on June 22, 2026, and the Ministry of Justice issued its first formal determination under Decree 835 on May 15, identifying the European Commission's cross-border investigation into Nuctech under the EU Foreign Subsidies Regulation as improper extraterritorial application of foreign law. The enforcement machinery is now fully operational.

Defense, Aerospace, and Automotive Supply Chains Under Measurable Pressure

The downstream consequences of the supply disruption span three sectors where rare earth dependency is structural and substitution timelines are measured in years, not quarters.

In defense, the exposure is most acute and the timelines most compressed. The Department of Defense has established a January 1, 2027 deadline prohibiting the use of rare earth magnet materials originating from China in US military platforms, requiring manufacturers to trace materials back to the earliest stages of the processing chain. CSIS researchers Dr. Gracelin Baskaran and Meredith Schwartz wrote in April 2026 that unless significantly more capacity comes online in the following eight months, adhering to this requirement may not be feasible. China controls approximately 90% of global rare earth processing capacity and 99% of heavy rare earth separation for dysprosium and terbium specifically. The materials in question are used in F-35 fighter jets, Arleigh Burke destroyers, Virginia-class submarines, and Tomahawk missiles. European defense contractors have reported being unable to secure magnets for missile guidance systems.

In aerospace, yttrium's role as a thermal barrier coating on turbine engines creates a direct production dependency. Reuters reported in February 2026 that yttrium shortages had already forced temporary production pauses at several US aerospace companies. By May 2026, CSIS was reporting that manufacturers were rationing yttrium and facing the prospect of pausing production of certain products if export flows did not recover. At USD 1,100 per kilogram against a pre-control price in single digits, the cost profile of any available yttrium has also changed fundamentally, compressing margins on fixed-price defense contracts.

In automotive, the Ford Explorer assembly halt in Chicago for one week in May 2025, caused by an inability to source magnets, established early that the controls would transmit to consumer-facing production lines rapidly. The IEA has documented that China exported 58,000 tonnes of rare earth magnets in 2024, sufficient to manufacture components for millions of cars, industrial motors, and aircraft. The automotive regulatory landscape now layers rare earth sourcing requirements on top of emissions and safety obligations, creating compounding compliance complexity for OEMs whose supplier networks extend into Chinese processing capacity at multiple tiers. Economists from the European Central Bank have estimated that over 80% of large European firms are no more than three intermediaries away from a Chinese rare earth producer.

Western Diversification: The Gap Between Investment and Operational Capacity

The strategic response to China's supply leverage has produced measurable, if insufficient, progress in 2025 and 2026. Lynas Rare Earths confirmed first production of separated dysprosium oxide at Lynas Malaysia in May 2025, followed by first terbium oxide production, making these the first separated heavy rare earth oxides produced at commercial scale outside China. MP Materials posted record neodymium-praseodymium production of 917 metric tonnes in Q1 2026, up 63% year on year, on total REO output of 12,983 metric tonnes for the quarter. MP Materials also broke ground on its 10X magnetics facility in Northlake, Texas in Q1 2026, targeting 7,000 metric tonnes per year of rare earth magnets at full capacity.

The US government's diplomatic mobilization has been equally visible. The Critical Minerals Ministerial hosted in Washington on February 4, 2026, drew representatives from 54 countries and the European Commission, launched the FORGE multilateral framework, announced over USD 30 billion in US investment commitments, signed 11 new bilateral critical minerals MOUs, and initiated Project Vault, an Export-Import Bank strategic reserve facility with USD 10 billion in direct lending capacity and USD 2 billion in private capital. The DOD has committed over USD 439 million since 2020 toward domestic rare earth supply chain development, including a USD 35 million award to MP Materials for a heavy rare earth processing facility.

But the gap between investment announcements and operational throughput is the central structural fact of this moment. Lynas and MP Materials remain the only credible ex-China mine-to-magnet platforms, and neither has achieved commercial-scale separated samarium-europium-gadolinium production, the critical missing link for Western samarium-cobalt magnet independence. China holds only 35% of global rare earth reserves but controls approximately 90% of processing and 99% of heavy rare earth separation. Global rare earth mine production reached an estimated 390,000 metric tonnes of REO equivalent in 2025, with China accounting for 270,000 metric tonnes, or 69.2% of output. The constraint is not ore in the ground; it is the separation and processing infrastructure that took China decades and substantial state capital to construct. As David Merriman observed, the bottlenecks in ex-China HREE supply will persist through 2026 and 2027 as alternative separation capacity is built and commissioned, a timeline that runs directly into the November 2026 enforcement deadline.

Conclusion: November 10 as the Next Structural Test

Three potential scenarios exist for November 10, 2026. China could extend the suspension of the October 2025 measures for another defined period, maintaining the current architecture while preserving diplomatic optionality. It could selectively reinstate controls targeting specific elements or end uses, using the existing licensing framework to apply pressure with surgical precision. Or it could allow the full October 2025 framework to resume, including the extraterritorial provisions that would extend Chinese licensing requirements to products manufactured entirely outside China using Chinese-origin materials or process technology. Each scenario has different implications for different sectors, but none of them resolves the baseline problem: the April 2025 controls have never been suspended, and their effect on supply is documented and severe.

Chris Berry, president of House Mountain Partners, identified the structural dynamic clearly: "As long as China continues its saber-rattling regarding dual use and export restrictions, this will serve to impede trade flows and elevate prices." The elevated prices are already recorded. Yttrium at USD 1,100 per kilogram, terbium at USD 4,500 per kilogram, neodymium-praseodymium oxide up sixfold between January and June 2026, these are not projections. They are the market's current pricing of a structural supply constraint that diplomatic activity has not resolved.

State Council Order No. 834's integration of export controls, countermeasures, data security obligations, and investment screening under a unified national security mandate means that the compliance burden on foreign firms operating in China has permanently increased, regardless of how November 10 resolves. The enforcement infrastructure is operational: the MOFCOM whistleblower reporting mechanism activated under Announcement No. 26 on July 1, 2026 institutionalizes decentralized enforcement across every level of the supply chain. The MIIT draft enforcement framework for the rare earth sector specifically, which closed public comment on May 28, proposes fines of up to five times illegal gains, business license revocation for producers exceeding quotas by more than 30%, and mandatory uploads to a national traceability system.

The central analytical conclusion that the data supports is this: the trade truce addressed a subset of the control architecture while leaving its operational core intact. The November 10 deadline determines whether that core expands or remains stable, but it does not determine whether the fundamental supply disruption continues. That determination has already been made by four months of customs data, price indices, and production pauses. Western supply chain diversification is underway, and the investments being made in 2026 at Lynas, MP Materials, and through FORGE are real. But as CSIS concluded in May 2026, diversifying rare earth supply chains is a national security imperative precisely because the current baseline, with China processing 90% of the world's rare earth output while yttrium prices trade at 140 times their pre-control levels, represents a structural vulnerability that no diplomatic summit has yet corrected.