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China's Intensified Rare Earth Export Controls and Japan's Supply Chain Diversification Strategy: Geoeconomic Weaponization and South Korea's Strategic Response
Total Summary
Executive Summary
In 2025, China implemented rare earth export controls twice targeting Japanese companies and research institutions, effectively halting the supply of high-performance magnet materials such as dysprosium and terbium to Japan. This is assessed as a typical case of weaponizing economic interdependence as a geopolitical pressure tactic in response to Japan's security policy shift, including increased defense spending and the formalization of counterstrike capabilities. In response, Japan is pursuing a multifaceted supply chain diversification strategy, including launching rare earth recycling initiatives, investing in processing startups based in allied nations, and strengthening core mineral diplomacy with India and Australia. However, there are clear limitations to structurally replacing China's dependency in the short term. Given that the probability of a short-term diplomatic resolution of the Sino-Japanese conflict is only 20%, and the most realistic outlook with a 55% probability is a basic scenario of escalating supply chain fragmentation due to sustained structural tensions, South Korea needs to adopt a proactive approach, positioning itself not as a bystander but as a strategic beneficiary of this conflict. Specifically, South Korea should leverage its strategic ambiguity, maintaining economic ties with China while upholding its security alliance with the US and Japan, as a diplomatic asset. Furthermore, it should aim to become a hub for the core mineral network among allies, starting with the restart of the Yeongwol tungsten mine, and proactively secure technological sovereignty in advanced rare earth functional materials, where China is vulnerable, thereby transforming the structural changes in supply chains into an opportunity for enhanced national competitiveness.
I. Issue Situation Analysis
Analysis of the Issue Situation: China's Intensified Rare Earth Export Controls and Japan's Supply Chain Diversification Response
1. Background and Progression of the Issue
Rare Earth Elements (REEs) are critical materials for modern advanced industries and defense industries, including electric vehicle motors, advanced weapons guidance systems, and semiconductor manufacturing. China has maintained an absolute advantage in the supply chain by accounting for over 60% of global REE production. China's precedent of using REEs as a tool for diplomatic and economic pressure dates back to 2010. At that time, China effectively halted REE exports to Japan following the Senkaku (Diaoyu Islands) dispute, a decisive event that made Japan acutely aware of the strategic necessity of supply chain diversification. Since then, Japan has systematically invested in building supply relationships with Australia, securing processing capabilities in Vietnam, and developing domestic recycling and alternative magnet technologies, thereby strengthening its preparedness [10].
However, China's economic pressure intensified again around 2025. On February 24, 2025, China's Ministry of Commerce announced the first export control list targeting Japanese companies and research institutions [5]. On June 30 of the same year, a second measure was taken, adding 20 Japanese institutions, including the National Institute for Defense Studies, to the export control list and placing 20 companies, such as Mitsui E&S, on a watch list [3][7]. China officially stated that these measures were intended to curb Japan's military capability enhancement and were a legitimate response to deter Japan's so-called 'neo-militaristic actions' [5][11].
2. Current Situation (Latest Trends)
The current rare earth conflict between China and Japan is escalating beyond a mere trade dispute into an economic security confrontation. According to Japanese media reports, exports of dysprosium and terbium, essential for manufacturing high-performance magnets, have fallen to virtually zero (0) levels, and the supply of tungsten-related products has also been suspended [7][11]. This is directly impacting Japan's defense industry and advanced manufacturing sectors, revealing the fragility of its supply chain in reality.
In response, Japan is seeking multifaceted self-help measures. Firstly, Mitsubishi Electric launched Japan's first recycling initiative in June 2025 to extract rare earths from discarded air conditioners [1]. This process involves specialized companies handling each stage. Additionally, Phoenix Tailings, a US rare earth processing startup supported by Sumitomo Corporation's venture arm Presidio and Yamaha Motor Ventures, aims to operationalize its US production facility by 2028, leveraging Asia's manufacturing capabilities and raw material supply chains [2]. This is seen as a move to strengthen the core mineral network among allied nations.
On the diplomatic front, Japan is accelerating supply chain diversification. In early July 2025, Japanese Minister of State Sanae Takaichi officially visited India and signed agreements with Prime Minister Modi on energy security, artificial intelligence, and metal cooperation [9]. India, possessing significant rare earth reserves, is emerging as a strategic partner for Japan [7]. The deepening cooperation between the two countries is provoking concern in Beijing, as it could gradually weaken China's supply chain leverage [6]. Meanwhile, in South Korea, US-based Almonty Industries is restarting its tungsten mine in Yeongwol County after 32 years, aiming for exports to the US and Japan, signaling visible moves towards reorganizing the regional core mineral supply chain [4].
3. Key Actors and Their Positions/Interests
Chinadefines these export control measures as legitimate security actions to deter Japan's military buildup. China's Ministry of Commerce has clearly stated its policy of a complete ban on exports of dual-use items to Japanese military users and for military purposes [11]. The state-run media outlet Global Times disparaged Japan's recycling efforts as "unrealistic" and merely "an international laughingstock," arguing that this only proves that China's export controls are precisely targeting Japan's weak points [1][5]. However, China also has vulnerabilities. According to research published by the University of Science and Technology of China, key patents in the field of advanced rare earth functional materials are still dominated by Japan and the United States, confirming that while China holds an advantage in resource reserves and production capacity, it lags behind in cutting-edge technology fields [8].
Japanhas a clear strategic intention to reduce its dependency on China through supply chain diversification and technological innovation. Minister of State Takaichi has stated that there are "no problems" with the rare earth issue [5], but in reality, Japan is pursuing a multi-layered response including recycling, cooperation with allied nations, and investment in startups. Japan's interests are strategically highly significant as they are directly linked to securing autonomy in the defense industry supply chain, beyond mere material acquisition.
Indiais emerging as a key partner for Japan, leveraging its rare earth reserves and growing manufacturing capabilities [7][9]. The Modi government has an interest in fostering its own core mineral industry and enhancing its position in the global supply chain through cooperation with Japan. However, both India and Japan face the practical limitation of being unable to establish an industrial ecosystem that can immediately replace China in the short term [6].
South Koreais seeking to escape dependency on China by restarting the Yeongwol tungsten mine, while also keeping open possibilities for supply chain cooperation with the United States and Japan [4]. South Korea faces a complex situation, having high economic interdependence with China while simultaneously facing pressure from the US-led supply chain reorganization, requiring it to maintain strategic balance while maximizing economic security interests.
United Statesis not directly intervening as a primary actor but is leading the supply chain reorganization from behind the scenes by supporting the establishment of a core mineral network among allied nations through startups like Phoenix Tailings [2]. The investment by Almonty Industries in the South Korean tungsten mine can also be seen as an example of US capital driving regional supply chain diversification [4].
4. Summary of Key Issues
The key issues of this topic can be summarized into four main dimensions.
First, the issue of the possibility and effectiveness of the weaponization of rare earths. While China's export controls are indeed inflicting substantial damage on Japanese industries, China itself harbors structural vulnerabilities, such as its patent inferiority in advanced rare earth functional materials [8]. Weaponizing the supply chain may be effective in the short term, but it could paradoxically lead to the weakening of China's market dominance in the long run by strengthening the diversification motives of importing countries.
Second, the debate over the feasibility of Japan's response strategy. While China dismisses Japan's responses, including recycling, cooperation with India and Australia, and startup investments, as mere short-term palliative measures [1][5], there is also a counterargument that Japan possesses more systematic response capabilities than before, based on its diversification experience accumulated since 2010 [7][10]. The key question is whether these alternatives can be scaled up at a pace and volume that can substantially replace Chinese rare earths.
Third, the issue of the linkage between economic security and military security. China cites the deterrence of Japan's 'neo-militarism' as the justification for export controls [3][11], indicating that this conflict is not merely a trade dispute but a complex conflict intertwined with security discourse. This acts as a factor that further complicates the path to conflict resolution.
Fourth, the geopolitical implications of regional supply chain reorganization. The deepening Japan-India cooperation, the restart of South Korea's mine, and the expansion of US capital investment in the region are forming a trend of gradual reorganization of the China-centric supply chain order [4][6][9]. In this process, the positioning adopted by intermediate countries such as South Korea, India, and Australia is emerging as a key variable determining the future direction of the regional economic security order.
II. In-depth Issue Analysis
In-depth Analysis of the Issue: China's Intensified Rare Earth Export Controls and Japan's Supply Chain Diversification Response
1. Analysis of the Root Causes of the Issue
The root cause of the current China-Japan rare earth conflict lies not in a simple trade friction, but in the structural deepening of 'weaponized interdependence,' where China transforms economic interdependence into a strategic coercion tool [11]. China not only dominates over 60% of global rare earth production but also functions as a key actor in supply chain power, beyond a mere resource-possessing nation, by integrally controlling the entire supply chain from mining to refining and processing. Based on this structural advantage, China is utilizing rare earth export controls as a means to deter Japan's military buildup, with China's Ministry of Commerce explicitly formalizing this as a "measure to prevent the enhancement of Japan's military capabilities" [3][5].
The direct justification provided by China is its response to Japan's so-called 'neo-militaristic actions.' Japan's security policy shifts, including increasing defense spending to approximately 2% of GDP, formalizing the possession of counterstrike capabilities, and deepening military cooperation with the United States, serve as grounds for China to legitimize economic pressure [5][11]. China's Ministry of Commerce including the National Institute for Defense Studies in Japan on the export control list was a symbolic measure that highlighted this military-security linkage [7]. In essence, China is employing rare earth export controls not as a purely economic tool, but as a means of sending geopolitical signals to correct Japan's security policy direction.
Another root cause can be found in the aspect of preemptive response to China's own technological vulnerabilities. According to an analysis by researchers at the University of Science and Technology of China, while China holds an overwhelming advantage in rare earth resource reserves and production capacity, key patents in the field of advanced rare earth functional materials are still dominated by Japan and the United States [8]. This suggests a strategic intention by China to compensate for its technological inferiority by strengthening control over resource supply and to preemptively block the conversion of Japan's advanced material technologies into military applications.
2. Structural Context
Political Structure
The China-Japan rare earth conflict arises at the intersection of historical tensions in bilateral relations and current regional power competition. Japan has been pursuing a shift in its security policy consistently since the Abe Shinzo administration, and this trend continues under Prime Minister Sanae Takaichi. Immediately after taking office, Prime Minister Takaichi visited India and signed an agreement with Prime Minister Modi covering energy security, artificial intelligence, and core mineral cooperation [9], which is interpreted as a diplomatic response to China's supply chain pressure. China perceives these diversification efforts by Japan as actions that erode its strategic influence, creating a vicious cycle where intensified export controls are met with further diversification.
Another key element of the political structure is the role of the United States. Japan's supply chain diversification strategy for rare earths is unfolding based on its alliance network with the US. The plan by Phoenix Tailings, invested in by the Sumitomo group, to establish production facilities in the US utilizing Asian manufacturing capabilities [2] aligns with the supply chain reorganization strategy at the US-Japan alliance level, beyond mere corporate investment. China perceives this as part of the US-led encirclement strategy against China, which is acting as a political driver for intensified export controls.
Economic Structure
From an economic structure perspective, the core of this conflict is the asymmetry in supply chain dependency. Japan has historically relied on China for most of its heavy rare earths, essential for manufacturing high-performance magnets such as dysprosium and terbium. The current situation, where exports of these items to Japan have virtually ceased, is directly impacting Japan's defense industry and advanced manufacturing sectors [7][11]. This asymmetrical dependency structure grants China asymmetrical coercive power and empirically demonstrates that economic interdependence can become a source of vulnerability.
However, this structure also entails certain costs for China. The more China restricts rare earth exports, the stronger the incentive for diversifying countries, including Japan, to diversify their supply chains, potentially weakening China's market dominance in the long run. Alternative suppliers such as India and Australia are gradually expanding their supply capabilities [6], and the restart of South Korea's Yeongwol tungsten mine [4] symbolically represents the acceleration of this de-Sinicization of supply chains. The fact that Chinese analysts dismiss Japan's countermeasures as "unrealistic" [1][5] can paradoxically be interpreted as reflecting China's anxiety about these structural changes.
Security Structure
From a security perspective, the current conflict exemplifies the 'securitization of economy,' where economic security and traditional security are merging. China's explicit mention of Japan's military capability enhancement as a justification for export controls and its inclusion of defense-related institutions in the export control list have established a structure where economic tools are directly mobilized for security purposes [3][7]. This signifies the institutionalization of economic coercion, extending beyond mere trade regulation.
Conversely, Japan's response is also blurring the lines between economy and security. The Indo-Japanese Economic Security Initiative aims beyond mere supply chain diversification to build a trusted network [7], reflecting a structural shift where economic cooperation is increasingly taking on the character of a security alliance. However, the success of the Indo-Japanese Economic Security Partnership hinges not only on strategic convergence but also on tangible industrial capabilities in manufacturing, processing, refining, design, and scaling [7], making the gap in industrial capabilities between the two countries a structural constraint.
3. Comparison with Historical Precedents and Similar Cases
2010 China-Japan Rare Earth Dispute: A Precedent as a Prototype
The most direct historical precedent for understanding the current conflict is the de facto suspension of rare earth exports from China to Japan following the 2010 Senkaku Islands dispute [7]. At that time, China, without officially declaring an export ban, effectively blocked rare earth supplies through measures such as customs delays and intensified inspections, which severely impacted Japan's manufacturing sector. This incident left two important historical lessons. First, it demonstrated China's willingness and capability to employ economic coercion in response to traditional security issues like territorial disputes. Second, it prompted Japan to pursue a systematic supply chain diversification strategy, leading to a better-prepared response when China intensified export controls again in 2026 [7][10]. This serves as an example of how economic coercion can paradoxically strengthen the target country's resolve for self-reliance.
Comparison with China's Economic Coercion Against Australia
In 2020, when Australia demanded an independent investigation into the origins of COVID-19, China imposed import restrictions on Australian barley, wine, coal, and beef. This case illustrates that China's pattern of converting diplomatic grievances into economic retaliation is structurally identical to the rare earth controls imposed on Japan. However, what is noteworthy about the Australian case is that China's economic coercion prompted Australia to diversify its export markets and strengthen economic security cooperation with countries like the United States, Japan, and India. This aligns with the current trend of Japan deepening supply chain cooperation with India, Australia, and others [6][9], suggesting a recurring pattern where China's economic coercion inadvertently strengthens regional solidarity against it.
Structural Similarity with Russia's Weaponization of Energy
Russia's use of natural gas supplies to Europe as a tool of diplomatic pressure shares structural similarities with China's weaponization of rare earths. The key lesson from the Russia-Europe energy conflict is that while high supply dependency leads to significant short-term coercive effects, it ultimately accelerates the demand side's investment in energy transition and diversification, thereby weakening the supplier's leverage in the long run. China's weaponization of rare earths follows the same structural dynamics, and the current trend of countries like India, Australia, and South Korea pursuing alternative supply chains can be seen as a repetition of this pattern [4][6].
4. Key Variables in Issue Development
Variable 1: Speed and Effectiveness of Japan's Supply Chain Diversification
The most crucial variable in the development of this issue is the speed and substance with which Japan diversifies its supply chains. Currently, Japan's initiatives, such as recycling scrapped air conditioners, establishing processing facilities within the United States through Phoenix Tailings (targeting 2028) [2], and cooperating on supply chains with India and Australia [9], are largely deemed insufficient to replace China's dependency in the short term [1][5]. However, contrary to the underestimations by Chinese analysts, these diversification efforts, if accumulated, could gradually weaken China's leverage in the medium to long term [6]. Therefore, the speed and scale of diversification will act as the key variable determining the direction of the conflict.
Variable 2: Speed of India's Industrial Capability Development
India possesses significant rare earth reserves and has expressed strategic commitment to critical mineral cooperation [7][9], but its actual mining and processing capabilities remain in the early stages. The success of the Indo-Japanese Economic Security Partnership depends not only on strategic intent but also on how rapidly India's industrial ecosystem matures [7]. If India can quickly enhance its rare earth processing capacity, it could create cracks in China's supply monopoly; otherwise, Japan's vulnerability will persist.
Variable 3: Scope and Intensity of China's Export Controls
The extent to which China expands its export controls is also a key variable. Currently, China applies export controls primarily to military-related institutions and companies [3][7]. However, if these controls are extended to encompass civilian high-tech industries, the impact on the Japanese economy would be qualitatively different. Conversely, if China excessively expands export controls, it faces a dilemma where it must carefully calibrate the level of control, as it could accelerate the relocation of Japanese companies away from China's supply chains and weaken the market position of China's rare earth industry.
Variable 4: The Role of the United States and the Cohesion of the Alliance Network
The extent to which the United States actively supports Japan's supply chain diversification is also a crucial variable. The establishment of processing facilities in the U.S. by Phoenix Tailings [2] and the strengthening of critical mineral cooperation within the Quad framework are heavily dependent on U.S. strategic intent. As the U.S. institutionalizes supply chain cooperation with its allies and increases investment, China's economic coercion will be weakened. However, political uncertainties within the U.S. or fissures in alliance management could further exacerbate Japan's vulnerability.
Variable 5: China's Ability to Overcome Technological Gaps
Another important variable is how quickly China can catch up to the core patented technologies held by Japan and the United States in advanced rare earth processing and functional materials [8]. Currently, China holds a dominant position in raw material supply control but is at a disadvantage in high-value-added technology sectors. If China overcomes this technological gap, its control over the entire supply chain will be further strengthened, narrowing Japan's room for maneuver. Conversely, if the technological gap persists, Japan's technological superiority could provide a certain degree of negotiation leverage despite China's resource control [8].
III. Scenario Analysis
Analysis of Scenarios for China's Intensified Rare Earth Export Controls and Japan's Supply Chain Diversification Response
1. Optimistic Scenario: Tension Reduction Through Negotiation and Accelerated Supply Chain Restructuring
Probability of Occurrence: Approximately 20%
Scenario Development
The optimistic scenario assumes that China and Japan will reach an agreement through negotiations, restoring diplomatic channels and gradually easing rare earth export controls. For this scenario to materialize, several preconditions must be met. First, Japan must make diplomatic gestures that partially alleviate China's security concerns, such as moderating the pace of defense spending increases or limiting the scope of its counter-strike capabilities. Simultaneously, China, recognizing the structural limitations of its rare earth industry, particularly the fact that Japan and the United States hold key patents in advanced rare earth functional materials [8], may strategically calculate that prolonged export controls could accelerate Japan's development of alternative technologies and supply chain diversification, thereby weakening China's own supply chain leverage [6].
In this scenario, China could gradually ease tensions by delisting some Japanese companies from its export control list, particularly those in the private manufacturing sector, or by resuming export permits for high-performance magnet materials like dysprosium and terbium for civilian use only [7]. Japan, in turn, would likely employ a two-track strategy, using the lifting of export controls as a bargaining chip while maintaining supply chain cooperation with India and Australia.
Industrial and Corporate Impact
If this scenario materializes, Japanese companies in the electric vehicle and defense industries would be the most direct beneficiaries in the short term. Manufacturers of electric vehicle motors and industrial motors, which use high-performance neodymium magnets, could resolve production disruptions by securing stable raw material supplies. However, even under the optimistic scenario, Japanese companies are unlikely to return to their previous level of dependence on a single Chinese supplier. As the 2010 precedent shows, supply chain diversification investments are likely to continue even after a temporary easing of tensions [7]. Phoenix Tailings' plan to establish U.S.-based processing facilities by 2028, supported by the Sumitomo group, is unlikely to be withdrawn even if Sino-Japanese relations improve [2], suggesting that shifts in the global rare earth processing industry landscape will proceed independently of diplomatic reconciliation.
This scenario also has complex implications for South Korean companies. In the case of the tungsten mine in Yeongwol-gun, which has resumed operations, export demand to Japan might decrease in the short term due to the easing of Sino-Japanese tensions [4]. However, this project, led by the U.S.-based Almonty Industries, targets the U.S. market as its primary export destination, placing it outside the direct influence of changes in Sino-Japanese relations. Moreover, as the structural trend of critical mineral supply chain restructuring continues even in an optimistic scenario, South Korea's investment in mineral resource development is considered a valid strategy in the medium to long term.
2. Baseline Scenario: Sustained Structural Tensions and Gradual Deepening of Supply Chain Fragmentation
Probability of Occurrence: Approximately 55%
Scenario Development
The baseline scenario posits a path where the rare earth conflict between China and Japan persists in a state of structural tension without a dramatic resolution or outright confrontation, with both sides strengthening their respective strategic positions. In this scenario, China would continue to exert pressure on Japan by maintaining current export controls or slightly expanding them, but would refrain from extreme measures such as a complete supply cutoff. This is because China recognizes that prolonged rare earth export controls would impact the profitability of its own rare earth companies and, conversely, accelerate Japan's efforts to build alternative supply chains [6].
Under this scenario, Japan would actively implement the energy security and critical mineral cooperation agreement signed during Prime Minister Kishida's visit to India [9], accelerating efforts to build supply chains utilizing India's rare earth reserves. Concurrently, Japan would pursue its existing diversification strategies, including the establishment of processing facilities in the United States by Phoenix Tailings [2], deepening supply relationships with Australia, and expanding processing capacity in Vietnam. Mitsubishi Electric's waste air conditioner recycling initiative, despite being dismissed as unrealistic by Chinese analysts [1][5], is expected to gradually expand with policy support from the Japanese government, providing psychological reassurance and a minor supplementary supply function.
A key characteristic of this scenario is the gradual but irreversible deepening of supply chain fragmentation. A dual structure will emerge, with a China-centric rare earth supply chain coexisting alongside an alternative supply chain centered around the United States, Japan, India, and Australia. In this process, companies belonging to each bloc will become increasingly integrated into different supply chain ecosystems. While this will lead to increased costs and supply instability in the short term, it will structurally weaken China's supply chain leverage in the medium to long term.
Industrial and Corporate Impact
In the baseline scenario, the most severely affected sectors would be Japan's defense industry and high-performance magnet manufacturers. If the supply of dysprosium and terbium to Japan continues to be virtually zero [7][11], Japanese defense-related companies will face soaring raw material procurement costs and production schedule disruptions. Paradoxically, this will incentivize Japanese companies to accelerate investment in recycling technologies and alternative magnet technologies, leading to a strengthening of Japan's technological competitiveness in the medium to long term. Considering that China holds an advantage in rare earth resource control while Japan and the United States dominate key patents in advanced rare earth functional materials [8], Japan is likely to adopt a strategic choice in this scenario to endure short-term supply shocks while further solidifying its technological edge.
The baseline scenario also has significant implications for the semiconductor materials sector. As Chinese semiconductor material companies erode the market share of Japanese suppliers, fueled by the AI boom [11], the export controls on rare earths will have a dual effect: worsening the cost structure for Japanese semiconductor material companies while simultaneously strengthening the relative competitiveness of Chinese firms. This will act as a pressure point, accelerating the structural restructuring of Japan's semiconductor materials industry.
For South Korean companies, the baseline scenario presents considerable opportunities. The restart of the Yeongwol tungsten mine allows for strategic positioning to absorb demand from Japan and the United States, which are seeking to reduce their reliance on China [4]. Furthermore, South Korean battery and electric vehicle companies will have the opportunity to secure stable raw material supplies by entering into direct contracts with emerging suppliers such as India and Australia during the restructuring of the critical mineral supply chain. However, as South Korea also has a significant level of dependence on Chinese rare earths, the supply chain fragmentation in the baseline scenario will impose the burden of increased procurement costs on South Korean companies as well.
3. Pessimistic Scenario: Full Economic Decoupling and Realization of Supply Chain Crisis
Probability of Occurrence: Approximately 25%
Scenario Development
The pessimistic scenario envisions a path where China comprehensively expands export controls on critical minerals, including rare earths, and Japan's efforts to build alternative supply chains fall behind expectations, leading to the realization of a supply chain crisis. Potential triggers for this scenario include further strengthening of Japan's defense policy or escalation of tensions in the Taiwan Strait, elevating Sino-Japanese relations to a quasi-wartime state. Given that China's Ministry of Commerce has already added dozens of Japanese companies and research institutions to its export control list on two occasions [3][5] and has officially declared the principle of a complete ban on exports of dual-use items to military end-users, additional geopolitical tensions could lead to a rapid expansion of control scope.
In this scenario, China would legally formalize the cessation of dysprosium and terbium supplies, which have already fallen to virtually zero [7][11], and expand the scope of controls to a wider range of rare earth elements, such as neodymium and praseodymium. Furthermore, China could employ strategies to indirectly pressure Indian and Australian companies that are deepening supply chain cooperation with Japan, or leverage its economic relations with these countries to obstruct Japan's diversification efforts [6]. The time asymmetry, where it takes considerable time for the critical mineral cooperation agreement signed by India and Japan to yield tangible results, while China's pressure takes immediate effect, makes this scenario particularly dangerous.
Japan's response capabilities would also face severe limitations in this scenario. As Chinese analysts point out, Mitsubishi Electric's waste air conditioner recycling initiative is difficult to be a realistic alternative in terms of scale and cost [1][5], and Phoenix Tailings' U.S. processing facilities will not be operational until 2028 [2]. India's rare earth processing industry remains in its nascent stages and lacks the capacity to meet Japan's demand in the short term [7]. Amidst these gaps in alternative supply sources, Japan's advanced manufacturing and defense industries could face a severe shortage of raw materials.
Industrial and Corporate Impact
The most dramatically affected sectors in the pessimistic scenario would be Japan's electric vehicle and hybrid vehicle industries. Japanese automakers such as Toyota and Honda could face the worst-case scenario of production line shutdowns due to supply disruptions of neodymium and dysprosium, key materials for high-performance magnet motors. This could escalate beyond a mere corporate issue into an industrial crisis with repercussions for the entire Japanese economy. Similarly, the defense industry's plans for enhancing defense capabilities could be disrupted by shortages of rare earth materials essential for guided missiles, jet engines, and radar systems, precisely aligning with China's intended strategic effects [11].
The pessimistic scenario would also have severe repercussions for the global semiconductor supply chain. As Chinese semiconductor material companies accelerate their replacement of Japanese suppliers [11], if export controls on rare earths extend to specialized materials used in semiconductor manufacturing processes, global semiconductor production costs could skyrocket, and supply chain instability could intensify. This would create a cascading effect, negatively impacting the growth momentum of the AI and advanced computing industries.
For South Korean companies, the pessimistic scenario presents a dual pressure. On one hand, semiconductor companies like Samsung Electronics and SK Hynix could be exposed to increased raw material procurement costs and supply instability due to China's expanded material export controls. On the other hand, electric vehicle companies like Hyundai Motor and Kia could also face difficulties in securing rare earth motor materials. However, paradoxically, the pessimistic scenario could maximize the strategic value of domestic critical mineral resource development, including South Korea's Yeongwol tungsten mine [4], and provide an opportunity for South Korea to emerge as a crucial node in the critical mineral supply chain connecting the United States, Japan, and Australia.
4. Scenario-Based Impact Analysis on the Global Economy and Industry
Rare Earth and Critical Mineral Industry Restructuring
A common structural change across all three scenarios is the restructuring of the global rare earth supply chain from a single, China-centric system to multiple regional supply chains. In the optimistic scenario, this restructuring proceeds relatively smoothly; in the baseline scenario, it deepens gradually but irreversibly; and in the pessimistic scenario, it occurs rapidly and disruptively. In any scenario, U.S.-based rare earth processing startups like Phoenix Tailings [2], India's rare earth mining and processing industry [9], and South Korea's production of critical minerals such as tungsten [4] will secure growth drivers in the medium to long term.
China's rare earth export controls are an effective pressure tool in the short term, but in the medium to long term, they carry a self-destructive nature that weakens China's own supply chain leverage [6]. This, combined with China's structural vulnerability of holding an advantage in resource control but lagging behind Japan and the United States in high-end material technology patents [8], acts as a factor limiting the long-term effects of export controls.
Electric Vehicles and Advanced Manufacturing
The electric vehicle industry is the sector where the impact varies most dramatically by scenario. In the optimistic scenario, Japanese automakers can re-secure stable raw material supplies and proceed with their EV transition plans as scheduled. In the basic scenario, increased raw material procurement costs somewhat weaken the price competitiveness of EVs, but accelerated investment in alternative magnet technologies serves as a catalyst for technological innovation in the medium to long term. In the pessimistic scenario, Japanese EV production faces severe disruptions, leading to a paradoxical situation where Chinese EV companies benefit.
Defense Industry and Security Technology
The impact on the defense industry is consistently negative across all scenarios. As China explicitly aims to curb Japan's military capabilities through export controls [3][5][11], increased raw material procurement costs and supply instability for the Japanese defense industry are unavoidable in any scenario. Paradoxically, this stimulates investment in domestic material production and recycling technologies for the Japanese defense industry, potentially leading to increased self-reliance in Japanese defense technology in the medium to long term.
Scenario-Based Implications for the Korean Economy
While South Korea is not a direct party to the Sino-Japanese conflict in any of the three scenarios, it is not immune to the ripple effects of supply chain restructuring. In the optimistic scenario, South Korea indirectly benefits from the easing of Sino-Japanese tensions while strengthening its strategic positioning by capitalizing on the structural trend of diversifying critical mineral supply chains. In the basic scenario, the strategic value of domestic critical mineral resources, including the Yeongwol tungsten mine, is highlighted, creating opportunities to enhance South Korea's status as an economic security partner through deepened supply chain cooperation with the United States and Japan. In the pessimistic scenario, the Korean manufacturing sector faces the direct pressure of rising raw material procurement costs, while simultaneously playing an amplified role as a critical mineral supplier, presenting a dual situation.
In conclusion, a comprehensive evaluation of the three scenarios suggests that under the basic scenario, which has the highest probability of realization, South Korea needs to redefine its strategic role from passively managing the Sino-Japanese conflict to actively participating in the restructuring of critical mineral supply chains. This aligns with a long-term strategy of positioning South Korea as a reliable intermediate processing and supply hub within the critical mineral supply chain network connecting the United States, Japan, India, and Australia, extending beyond simple mineral resource development [4][9].
IV. Analysis of Response Measures
China's Intensified Rare Earth Export Controls and Japan's Supply Chain Diversification Response: Analysis of Response Measures
Introduction: Premises for Analyzing Response Measures
To derive implications of the Sino-Japanese rare earth conflict for South Korea's diplomacy and economic security, it is essential to systematically examine the specific response options available to South Korea should each scenario materialize. While South Korea possesses strategic flexibility due to not being a direct party to this conflict, it is simultaneously not immune to the ripple effects of the conflict owing to its high dependence on Chinese rare earths and close supply chain linkages with Japan. As symbolized by the restart of the Yeongwol tungsten mine [4], South Korea has already taken the first step towards supply chain diversification; however, differentiated response designs for each scenario are necessary to develop this into a systematic economic security strategy.
1. Response Measures under the Optimistic Scenario
Presentation of Response Options
In the optimistic scenario, where Sino-Japanese diplomatic negotiations lead to a phased easing of rare earth export controls, South Korea's response options can be broadly categorized into three.
The first option is to be an early participant in a trilateral supply chain cooperation framework involving South Korea, Japan, and India. With the Japan-India economic security partnership gaining momentum through the agreement signed by Prime Minister Takaichi and Prime Minister Modi, encompassing energy security, artificial intelligence, and critical mineral cooperation [9], South Korea should actively explore participation in this framework. India possesses significant rare earth reserves and is strengthening its commitment to critical mineral cooperation [6], while South Korea possesses processing technologies in semiconductors, batteries, and fine chemicals, enabling the formation of a mutually complementary cooperative structure.
The second option is to proactively establish a dialogue channel for critical minerals between South Korea and China, leveraging the phase of easing Sino-Japanese tensions. In an optimistic scenario, China may move towards limiting the scope of export controls to civilian sectors or partially easing them [7]; institutionalizing discussions on critical mineral supply stabilization with China during this period would be strategically effective.
The third option is for South Korean companies to participate in rare earth processing projects based on alliances, such as Phoenix Tailings, through equity investment or technological cooperation [2]. This project, led by the Sumitomo group, aims to connect Asian manufacturing capabilities and supply chains with production within the United States, creating space for South Korean material and component companies to participate.
Analysis of Advantages and Disadvantages
The primary advantage of the option to join the trilateral South Korea-Japan-India cooperation framework is the ability to structurally reduce dependence on China while avoiding excessive reliance on any single country. The combination of India's raw materials, South Korea's processing technology, and Japan's final material technology could form a substantial alternative to the Chinese supply chain. However, the fact that India's industrial infrastructure is still in its nascent stages is a limiting factor for short-term feasibility [7]. As pointed out, the success of the India-Japan economic security initiative depends not only on strategic convergence but also on actual industrial capabilities [7]; even if South Korea joins this framework, it should be approached as a medium to long-term investment rather than seeking short-term results.
The option to establish a critical minerals dialogue channel between South Korea and China offers the practical advantage of securing supply stability in the short term. However, given that China can convert economic interdependence into coercive measures at any time, as demonstrated with Japan [11], this option should be positioned as a means to buy time rather than a fundamental solution. Furthermore, maintaining cooperative channels with China while actively participating in the US-led supply chain restructuring could increase the burden of managing diplomatic balance.
Feasibility and Risk Assessment
Considering that the probability of the optimistic scenario itself materializing is only about 20%, it is not advisable to allocate excessive resources to response options specific to this scenario. However, joining the trilateral supply chain cooperation framework and participating in alliance-based processing projects can be classified as scenario-independent options, as they remain valid strategies even if the optimistic scenario does not materialize. Conversely, establishing a dialogue channel with China should be managed as a scenario-dependent option, as it can only gain practical momentum in an optimistic phase of easing Sino-Japanese tensions.
Priority Response Measures
In the optimistic scenario, South Korea's priority response measure is to diplomatically express its intention for early participation in the India-Japan economic security cooperation framework and to preemptively set the agenda for specific cooperation. The phase of easing Sino-Japanese tensions paradoxically broadens the diplomatic space for South Korea to be incorporated into supply chain diversification frameworks, making proactive diplomacy that capitalizes on this opportunity the key.
2. Response Measures under the Basic Scenario
Presentation of Response Options
The basic scenario, characterized by persistent structural tensions between China and Japan and gradual deepening of supply chain fragmentation, is the scenario with the highest probability of realization (approximately 55%) and should serve as the primary benchmark for designing South Korea's response.
The first response option is the systematic expansion of domestic critical mineral production capabilities. While the restart of the Yeongwol tungsten mine is a meaningful first step in itself [4], it needs to be developed beyond an isolated case into a national strategy for enhancing self-sufficiency in critical minerals. Beyond tungsten, it is necessary to expand domestic exploration and development investment in strategic minerals such as rare earths, lithium, and cobalt, and to establish the institutional and financial support systems for this.
The second option is to expand bilateral critical mineral agreements with resource-rich countries such as Australia, Canada, and Kazakhstan. Just as Japan has pursued diversification by establishing supply relationships with Australia and securing processing capabilities in Vietnam [10], South Korea also needs a portfolio strategy to diversify supply dependence concentrated in specific countries. Australia, in particular, has abundant rare earth reserves and a stable economic relationship with South Korea, providing a realistic basis for expanded cooperation.
The third option is to accelerate investment in the development and industrialization of rare earth recycling technologies. Although Mitsubishi Electric's initiative to extract rare earths from discarded air conditioners [1] is dismissed as unrealistic by Chinese analysts [5], the economic viability of recycling technologies can rapidly improve as supply chain crises intensify. South Korea has the potential to secure a competitive advantage in rare earth recycling technology development based on the fine chemical expertise accumulated from its semiconductor and display industries.
The fourth option is to institutionalize critical mineral supply chain cooperation between South Korea and Japan. As South Korea's tungsten can contribute to Japan's supply chain diversification [4], critical mineral cooperation between the two countries aligns with mutual interests. However, to ensure long-term stability, this cooperation needs to evolve beyond simple export transactions into an institutional framework encompassing joint stockpiling, joint development, and technological cooperation.
Analysis of Advantages and Disadvantages
The option to expand domestic critical mineral production capabilities has the fundamental advantage of enhancing autonomy in supply security. However, mining development requires substantial initial investment and long lead times, and profitability is uncertain. As seen in the case of the Yeongwol tungsten mine, restarting a mine that had been suspended for 32 years involves significant costs and technical challenges [4]. Therefore, this option should be approached from the perspective of building long-term strategic assets rather than responding to short-term supply crises.
The option to expand bilateral agreements with resource-rich countries offers the advantage of achieving supply diversification effects in a relatively short period. However, resource-rich countries are negotiating with multiple partners, including Japan, the United States, and the European Union, potentially diluting bargaining power. Furthermore, there is a risk of reduced agreement stability if resource nationalism intensifies.
The option to invest in rare earth recycling technology has high strategic value due to its potential to fundamentally weaken China's supply chain leverage. Although Chinese analysts dismiss Japan's recycling efforts as unrealistic [5], this assessment is based on current technological levels and economic viability; the situation could change with technological advancements and economies of scale. However, the long time lag from technology development to industrialization limits its effectiveness as an immediate solution to short-term supply crises.
The option to institutionalize South Korea-Japan critical mineral cooperation has a high probability of realization as it can create a mutually beneficial structure for both countries. However, the historical sensitivity of South Korea-Japan relations could constrain the speed and depth of cooperation. There is also a risk that China might perceive the strengthening of South Korea-Japan cooperation as a containment measure against itself and respond by intensifying economic pressure on South Korea.
Feasibility and Risk Assessment
In the basic scenario, the most feasible options are expanding bilateral agreements with resource-rich countries and institutionalizing South Korea-Japan critical mineral cooperation. The former can be realized as an extension of the resource diplomacy currently pursued by the South Korean government, and the latter can leverage the specific point of potential tungsten exports from Yeongwol to Japan [4]. On the other hand, expanding domestic mining development and industrializing recycling technologies should be classified as medium to long-term tasks, but preemptive investment is necessary from the perspective that if investment does not begin now, there will be no response measures when the supply chain crisis intensifies.
The key risk is the possibility of retaliation from China. If South Korea strengthens supply chain cooperation with Japan, India, Australia, and others, China may perceive South Korea as a challenging force to its supply chain leverage and exert economic pressure. Considering China's pattern of increasing pressure by adding Japanese companies to export control lists [3], there is a possibility that South Korean companies could face similar risks. Therefore, balanced diplomacy that manages economic relations with China while pursuing supply chain diversification is essential.
Priority Response Measures
In the basic scenario, South Korea's top priority response measure is to institutionalize critical mineral cooperation between South Korea and Japan. This is feasible in the short term, beneficial to both countries, and highly consistent with the US-led supply chain restructuring framework. Simultaneously, a multifaceted approach is necessary, involving expanding agreements with resource-rich countries like Australia and pursuing medium to long-term investments in domestic mining development and recycling technologies.
3. Response Measures under the Pessimistic Scenario
Presentation of Response Options
In the pessimistic scenario, where Sino-Japanese conflict escalates into a complete economic severance and supply chain bloc formation accelerates, South Korea faces its most difficult strategic choices. The response options available to South Korea in this scenario are as follows.
The first option is to strategically integrate into the US-led critical mineral supply chain alliance. With Phoenix Tailings building a structure that connects Asian manufacturing capabilities and raw material supply chains to strengthen the critical mineral network among allies [2], securing a role as a processing and manufacturing hub within this network could be the most realistic survival strategy in the pessimistic scenario.
The second option is to strengthen the national critical mineral emergency stockpiling system. As market mechanisms for procurement become difficult with accelerated supply chain bloc formation, it is essential for the state to expand strategic reserves and diversify stockpiled items. The case of dysprosium and terbium exports from Japan dropping to virtually zero [7] serves as a warning that supply disruptions can indeed occur.
The third option is to concentrate national capabilities on developing alternative technologies that reduce the amount of rare earths used. Just as China recognizes the weakness of Japan and the United States dominating key patents in high-performance rare earth materials [8], technological innovation that lowers rare earth dependence is an approach that fundamentally resolves supply chain vulnerabilities. This includes intensive investment in technologies that reduce or replace the use of rare earth magnets in EV motors and technologies that substitute rare earth materials in semiconductor processes.
Analysis of Advantages and Disadvantages
The option to integrate into the US-led supply chain alliance offers the advantage of providing the fastest path to securing supply security. However, this option entails significant costs in economic relations with China. Full integration into supply chain blocs, given South Korea's still high export dependence on China, could trigger economic retaliation from China, leading to broader economic losses than the rare earth issue itself. Therefore, this option is appropriate to pursue fully only in the pessimistic scenario where bloc formation becomes irreversible.
The option to strengthen the national stockpiling system has high practical value as it provides an immediate buffer against short-term supply crises. However, stockpiling incurs substantial financial costs, and it does not resolve the issue of securing continuous supply after the reserves are depleted. Stockpiling should function as a means to buy time until supply chain diversification is complete, and cannot be a final solution in itself.
The option of developing alternative technologies is the most fundamental solution, but it faces the dilemma that the time lag from technology development to commercialization does not align with the urgency of the pessimistic scenario. However, paradoxically, the pessimistic scenario provides the strongest justification for national investment in alternative technology development. If a supply chain crisis materializes, the pace of technological development may also accelerate, and if South Korea secures a leading position in this field, it could become a source of new industrial competitiveness in the long term.
Feasibility and Risk Assessment
In the pessimistic scenario, the most immediately executable option is strengthening the national stockpiling system. This can be pursued through policy decisions alone and is effective in absorbing the short-term shock of a supply chain crisis. Integration into the US-led supply chain alliance requires diplomatic negotiations and institutional adjustments, thus falling under medium-term tasks, while alternative technology development is classified as a long-term investment.
The greatest risk South Korea faces in the pessimistic scenario is the irreversibility of strategic choices. In a situation of accelerating supply chain bloc formation, the choice of which bloc South Korea integrates into determines its long-term industrial structure and diplomatic standing, beyond short-term gains and losses. Therefore, even in the pessimistic scenario, an approach that maintains maximum strategic flexibility while responding in stages is necessary.
Priority Response Measures
In a pessimistic scenario, South Korea's top priority response should be to immediately strengthen its national stockpiling system while negotiating its role and position within the US-led supply chain network. Simultaneously, a substantial increase in national R&D investment for alternative technology development is necessary to lay the foundation for resolving medium- to long-term vulnerabilities.
4. Cross-Scenario Strategic Principles
Synthesizing the three scenarios yields strategic principles for South Korea that remain valid regardless of which scenario materializes. First, supply chain diversification is a structural challenge that must be pursued continuously across all scenarios. The pattern of China weaponizing economic interdependence as a coercive tool has been clearly observed in the case of Japan [11], and South Korea is exposed to the same vulnerability. Second, despite the historical sensitivity of bilateral relations, cooperation between South Korea and Japan on critical minerals is an area of aligned strategic interest, and the continuity of cooperation must be secured through institutionalization [4]. Third, relations with China should be approached from a risk management perspective rather than complete decoupling, and a balanced diplomacy that simultaneously pursues supply chain diversification and management of relations with China should be the core axis of South Korea's economic security strategy. China itself faces a technological vulnerability, relying on patents from Japan and the United States in the field of advanced rare earth functional materials [8]; if South Korea strengthens its capabilities in this technological domain, it can be leveraged to enhance its negotiating power with China.
V. Final Recommended Response Measures
China's Intensified Rare Earth Export Controls and Japan's Response to Supply Chain Diversification: Comprehensive Recommended Response Measures and Action Plan
1. Comprehensive Judgment and Recommended Response Measures
The rare earth conflict between China and Japan should be interpreted not as a short-term diplomatic friction but as a signal of structural supply chain restructuring. China's action to reduce exports of dysprosium and terbium to Japan to virtually zero, and its inclusion of dozens of Japanese companies and research institutions on its export control list, is not mere retaliation but a typical manifestation of 'weaponized interdependence,' where economic interdependence is transformed into a strategic coercive tool [7][11]. Considering that the probability of the base scenario is the highest at 55%, followed by the conflict escalation scenario at 25%, South Korea must design its response strategy based on the fundamental premise of an environment where tensions between China and Japan persist structurally and supply chain fragmentation gradually intensifies.
Based on this judgment, the core response directions recommended for South Korea can be summarized along three axes. First, Leveraging Strategic Ambiguity as a Diplomatic Asset. South Korea is uniquely positioned to maintain economic ties with China while simultaneously upholding security alliances with the United States and Japan; this position must be transformed from a passive dilemma into an active asset for mediation. Second, Proactive Establishment of a Supply Chain Hub Strategy. As demonstrated by the restart of the Yeongwol tungsten mine [4], South Korea has already begun to establish the physical foundation for building a de-China supply chain; this must be developed beyond simple resource development into a hub for critical mineral networks among allies. Third, Strategic Securing of Technological Sovereignty. The fact that while China holds resource advantages, key patents in advanced rare earth functional materials are led by Japan and the United States [8] suggests a structural opportunity for South Korea to become a beneficiary of supply chain restructuring by strengthening its technological capabilities.
2. Short-, Medium-, and Long-Term Action Plans
Short-Term Action Plan (0-12 months): Diagnosis of Vulnerabilities and Establishment of Emergency Response System
The most urgent task is to precisely diagnose the structure of South Korea's industrial dependence on rare earths. A supply chain vulnerability map must be created, identifying the degree of dependence on Chinese rare earths and related materials at the item level for sectors such as neodymium magnets for electric vehicle motors, semiconductor manufacturing equipment, and defense industry components, and calculating the period and cost for alternative procurement in case of supply disruption. This task should ideally be completed within six months through cooperation between the Ministry of Trade, Industry and Energy and the Korea Mine Reclamation Corporation.
On the diplomatic front, an information-sharing channel for critical minerals with Japan must be activated immediately. While Japan is experiencing the practical shock of dysprosium and terbium supply disruptions [7], South Korea can build a foundation of trust for supply chain cooperation by proactively sharing the production status and exportable volume of the Yeongwol tungsten mine with the Japanese side [4]. This functions as a diplomatic act that creates a tangible point of contact for South Korea-Japan economic security cooperation, going beyond simple mineral trade. Simultaneously, opportunities for South Korea's participation in discussions on critical mineral cooperation with India and Australia must be explored. Just as Prime Minister Kishida signed agreements with Prime Minister Modi in the fields of energy security, critical minerals, and artificial intelligence [9], South Korea must also establish diplomatic points of contact to be integrated into this cooperation network.
In terms of domestic industrial support, measures to expand rare earth stockpiles from their current levels in the short term are necessary. Referencing the precedent of the Japanese government strengthening its stockpiling policy after the 2010 incident [7], the strategic stockpile target quantities should be raised and budgets secured for items with high supply disruption risk, such as dysprosium, terbium, and tungsten.
Medium-Term Action Plan (1-3 years): Building a Supply Chain Hub and Strengthening Technological Capabilities
The core objective of the medium-term phase is to position South Korea as a practical hub for the critical mineral supply chain among allies. To this end, the production capacity of the Yeongwol tungsten mine must be expanded, and investment must be attracted by discovering additional domestic mineral resource development projects [4]. The model of foreign companies like Almonty Industries participating in mineral development within South Korea is an effective way to achieve both foreign investment attraction and technology transfer simultaneously; therefore, the incentive system that institutionally supports this must be improved.
Building processing and refining capabilities is also a key medium-term task. Given China's integrated control over the entire supply chain from mining to refining [11], the current approach of relying on imported raw ore cannot fundamentally resolve supply chain vulnerabilities. By importing raw ore from regions such as Australia, Canada, and Africa and establishing domestic processing and refining capabilities, South Korea can serve as a processing hub between raw material suppliers and end consumers. In this process, referencing the model where the Sumitomo group supports Phoenix Tailings in establishing production facilities within the United States by utilizing Asian manufacturing capabilities [2], South Korean companies should explore opportunities to perform similar roles.
In terms of strengthening technological capabilities, investment in rare earth recycling technology development must be expanded. Although Mitsubishi Electric's initiative to extract rare earths from discarded air conditioners [1] has been evaluated as unrealistic by Chinese analysts [5], urban mining technology can become an important means of enhancing supply chain independence in the long run. South Korea has the potential to secure a competitive advantage in this field, given its relatively well-established infrastructure for recycling electronic products. Furthermore, considering that key patents in advanced rare earth functional materials are concentrated in Japan and the United States [8], it is advisable to pursue joint R&D programs between South Korea and Japan to enable South Korean companies to be integrated into this technological ecosystem.
On the diplomatic front, a trilateral cooperation framework involving South Korea in the India-Japan economic security cooperation structure must be established. With India possessing significant rare earth reserves and strengthening its commitment to critical mineral cooperation [6][9], South Korea can take on the role of coordinating trilateral cooperation that combines India's raw material supply capabilities, Japan's technological capabilities, and South Korea's manufacturing and processing capabilities. This will have the effect of collectively weakening China's supply chain leverage while enhancing South Korea's diplomatic standing.
Long-Term Action Plan (3-10 years): Institutional Completion of the Economic Security Ecosystem
In the long term, South Korea should aim to eliminate structural vulnerabilities in the critical mineral supply chain and complete the institutional foundation for economic security cooperation among allies. To this end, the most important task is to build a domestic industrial ecosystem across the entire critical mineral supply chain. An industrial cluster encompassing the entire cycle from mining, processing, refining, material manufacturing, to recycling must be formed, and the capabilities of domestic companies at each stage must be systematically nurtured.
On the institutional level, a legal and institutional framework dedicated to critical mineral supply chain security must be completed. Existing dispersed policies should be integrated to strengthen legislation related to economic security, and a governance system capable of rapid response in the event of a supply chain crisis must be established. The example of Japan enacting the Economic Security Promotion Act in 2022, reorganizing its economic security system around four pillars—supply chain strengthening, critical infrastructure protection, patent non-disclosure, and advanced technology development—provides a useful reference model for South Korea.
In relations with China, strategic de-risking should be pursued rather than complete decoupling. The fact that China possesses technological vulnerabilities in the field of advanced rare earth functional materials [8] means that South Korea can secure a certain degree of negotiating power in its relationship with China if it strengthens its technological capabilities. Therefore, in the long term, while not completely excluding the possibility of technological cooperation with China, a balanced strategy of consolidating the alliance-centric network in core parts of the supply chain must be maintained.
3. Monitoring Indicators and Trigger Points
Key Monitoring Indicators
The key indicators that the South Korean government and businesses should continuously track can be broadly categorized into four areas. First, Supply Chain Status Indicatorsinclude closely monitoring the number and volume of rare earth export permits from China to South Korea, international market price trends for strategic minerals such as dysprosium, terbium, and tungsten, and the frequency of updates and expansion of the scope of China's Ministry of Commerce export control lists [3][5]. In particular, the possibility of China's export control measures applied to Japan being extended to South Korean companies must be closely monitored.
Second, Diplomatic and Security Trend Indicatorsinclude tracking the operation of diplomatic channels between China and Japan and the frequency of high-level contacts, the extent to which Japan's defense spending increases and its plans for operating counter-attack capabilities are being specified, and the practical progress of critical mineral cooperation between India and Japan [6][9]. These indicators serve as leading signals for predicting whether conflict will escalate or de-escalate.
Third, Technology and Industry Trend Indicatorsinclude monitoring the progress of Phoenix Tailings' production facility construction in the United States [2], the level of commercialization of rare earth recycling technology by Japanese companies [1], and the speed of technological capability improvement by Chinese rare earth processing companies [11]. These indicators are useful for gauging the speed and direction of supply chain restructuring.
Fourth, Domestic Industrial Vulnerability Indicatorsinclude regularly assessing the inventory levels of rare earths held by South Korean electric vehicle, semiconductor, and defense industry companies, the production volume and export performance of the Yeongwol tungsten mine [4], and changes in domestic rare earth recycling processing capacity.
Trigger Points
It is appropriate to set the trigger points requiring an escalation of response levels as follows. Triggers Requiring Immediate Responseinclude cases where China includes South Korean companies or research institutions in its export control list, cases where China's rare earth exports to South Korea decrease by more than 30% compared to the previous year, and cases where China expands the scope of rare earth export controls to include semiconductor materials, battery materials, and the like. If such situations occur, the South Korean government must immediately activate an emergency supply chain response system and proceed with releasing strategic stockpiles and securing emergency alternative procurement channels.
Triggers Requiring Medium-Term Strategy Adjustmentinclude cases where the conflict between China and Japan escalates into military tension, cases where the United States launches a new framework institutionalizing critical mineral supply chain cooperation among allies, and cases where India begins to earnestly build its rare earth processing capabilities. In such instances, South Korea must accelerate the implementation of its supply chain hub strategy and re-prioritize related diplomatic cooperation.
Triggers Requiring Long-Term Strategy Re-evaluationinclude cases where China substantially narrows the gap with Japan and the United States in rare earth processing technology [8], cases where global rare earth prices rise long-term to a level that promotes the development of alternative technologies, and cases where relations between China and Japan transition to a phase of full reconciliation. Such environmental changes could serve as an opportunity to re-evaluate the economic feasibility of South Korea's supply chain hub strategy and its overall diplomatic positioning.
4. Summary Conclusion
The rare earth conflict between China and Japan presents both a threat and an opportunity for South Korea. From a threat perspective, the possibility that China's economic pressure on Japan could extend to South Korea cannot be ruled out, and as supply chain fragmentation intensifies, the cost and uncertainty of raw material procurement for South Korea's manufacturing industry will increase. However, from an opportunity perspective, South Korea is structurally positioned to benefit from supply chain restructuring due to its unique location, maintaining economic ties with China while simultaneously pursuing security cooperation with the United States and Japan.
The key lies in speed and proactivity. As demonstrated by the restart of the Yeongwol tungsten mine [4] and Japan's investment in Phoenix Tailings [2], supply chain restructuring is already underway. If South Korea passively observes this trend, it risks being marginalized in the restructured supply chain landscape. Conversely, by systematically pursuing supply chain vulnerability diagnosis, expansion of strategic stockpiles, development of processing and refining capabilities, participation in trilateral cooperation among South Korea, Japan, and India, and investment in critical mineral technology development on a short-, medium-, and long-term basis, South Korea can establish itself as an indispensable hub in the critical mineral network among allies.
In an era where China weaponizes its resource advantages, South Korea's economic security cannot be achieved solely by reducing dependence on specific suppliers. True economic security is achieved by building supply chain networks with reliable partners and creating value within those networks that only South Korea can provide. The China-Japan conflict clearly signals that now is the time for South Korea to move in that direction.
References
[2] [Nikkei Asia] Sumitomo-backed Phoenix Tailings taps Asia to strengthen US rare-earth ambitions
[3] [The Wall Street Journal] China Adds More Japanese Entities to Export Control List
[4] [Nikkei Asia] South Korea's tungsten mine revival seeks China-free supply
[6] [Economic Times] Beijing’s warning reveals real stakes of Modi–Takaichi summit
[7] [The Diplomat] The Industrial Gap in India-Japan Economic Security
[8] [South China Morning Post] China’s rare earth industry has critical weakness, researchers warn
[9] [Business Times (SG)] Takaichi, Modi deepen economic ties to cut reliance on China
[10] [Global Times] GT Voice: Hype over 'supply risk' won't win Japan competitive edge
[11] [DigiTimes Asia] China's chip material makers riding the AI boom close in on Japan
*This text is an AI translation of an original written in Korean. Some translations or nuances may be inaccurate.