Doha: Qatar National Bank Rare earths are critical for the electronics and digital revolution and are becoming increasingly important as new industries and technologies emerge.

According to Qatar News Agency, the QNB’s weekly economic commentary emphasized that sectors such as AI, semiconductors, defense, aerospace, and energy transition are becoming some of the most strategic for the 21st century. These sectors are expected to necessitate significant growth in the supply of rare earths, further solidifying China’s dominant position in these supply chains. This creates bottlenecks and vulnerabilities for the US and other competitors, with US-China strategic competition predicted to be a major driver of the global economy in the coming years.

In recent weeks, disputes over export controls related to rare earth supply chains nearly escalated into a significant US-China trade conflict. Despite their name, rare earth elements are not particularly rare in the Earth’s crust, but their extraction and refining are technologically complex, environmentally sensitive, and capital intensive.

The group of rare earth elements includes 17 elements such as neodymium, dysprosium, terbium, cerium, lanthanum, and yttrium, each with unique magnetic, optical, or catalytic properties that are indispensable for modern industry. Additionally, several related critical minerals like gallium, germanium, indium, cobalt, and lithium play similar roles across supply chains.

The significance of these materials is most evident in three rapidly expanding sectors globally. In AI and semiconductors, rare earths are essential for machinery and processes that enable advanced chip production. Cerium oxide polishes silicon wafers with nanometric precision, yttrium is a core component of plasma etching systems, and neodymium-based magnets power high-efficiency cooling and motor systems in AI data centers. Related elements such as gallium and germanium are directly used in high-performance chips and optical communications.

In defense and aerospace, rare earths are crucial for jet engines, radar systems, and precision-guided weapons. In energy transition, rare earths like neodymium and paraseodyum are vital for the powerful magnets that enable efficient operation of EVs and wind turbines, while lanthanum and cerium are crucial in catalytic converters and energy storage technologies.

The surge in demand has transformed rare earths and critical minerals from industrial commodities into strategic assets, creating new geopolitical tensions. This is largely due to the concentration of production and processing capacity in a few countries, particularly China.

Former Chinese leader Deng Xiaoping famously remarked in 1987 that “The Middle East has oil; China has rare earths.” China has invested heavily in geological surveys, mining, and refining technology, and by the early 2000s, it had become the dominant player in nearly every stage of the supply chain. Today, it accounts for around 65 percent of global mine output and over 85 percent of global refining and processing capacity, producing the majority of permanent magnets and other high-value downstream products. China has also expanded its industry presence overseas, controlling significant assets, resources, and reserves beyond its borders.

In 2021, Beijing consolidated several state-owned companies into the China Rare Earth Group, enhancing its control and coordination over the sector. More recently, China introduced export controls citing national security reasons. Officials have emphasized that these controls are not outright bans but measures to ensure “responsible and secure trade in dual-use goods.” Nevertheless, these actions have reinforced perceptions that China views control over critical minerals as an important element of its geopolitical strategy.

In response, other countries are working to diversify supply chains and reduce strategic dependence. The US has classified rare earths as critical to national security and is investing in domestic mining and processing through the Defense Production Act. However, these efforts are expected to take years to realize their full impact.