G7 Scrambles As China Tightens Rare Earth Controls

China’s recent decision to tighten export controls on rare earths and lithium battery materials has sent ripples through the global economy, prompting urgent discussions among the world’s leading economies about supply chain security, inflation risks, and technological competition. The move, which comes as China cements its dominance over critical mineral and battery supply chains, has raised alarms in Europe and across the Group of Seven (G7) nations, who now face the prospect of renewed price pressures and heightened geopolitical competition.

On October 9, 2025, China’s Ministry of Commerce and the General Administration of Customs announced a sweeping set of export controls targeting lithium-ion batteries with an energy density of at least 300Wh/kg, as well as key battery production equipment and critical cathode and anode materials. These new regulations, set to take effect on November 8, 2025, are the latest in a series of measures designed to protect China’s technological lead and strategic interests in the rapidly growing battery sector. According to the South China Morning Post, analysts believe these controls are intended to consolidate China’s advantage in the lithium battery industry and to slow the progress of foreign competitors. The controls are also seen as a response to the growing strategic importance of high-performance batteries for military applications.

China’s dominance in battery and rare earth supply chains is nothing short of staggering. As reported by Reuters, the country currently provides over 70% of global battery materials and more than 60% of power batteries worldwide. When it comes to rare earths—essential for everything from smartphones to electric vehicles and advanced weaponry—China controls between 80% and 90% of the world’s supply. These numbers underscore just how much leverage Beijing wields over industries critical to the green transition and modern defense systems.

Recent technological breakthroughs have only strengthened China’s position. Chinese researchers have developed batteries with energy densities up to 600 watt-hours per kilogram (Wh/kg), a significant jump from current commercial standards. These advancements promise batteries that can hold more charge and last longer after repeated cycles, with some experts predicting potential mass production within five years. Such improvements are not just about consumer electronics or electric cars—they also carry profound military implications, as high-performance batteries are vital for next-generation weapons systems and unmanned vehicles.

Given these developments, it’s no surprise that the announcement of new export controls has triggered concern among international policymakers. On October 15, 2025, Madis Muller, a member of the European Central Bank’s Governing Council and head of Estonia’s central bank, warned that Chinese measures to curb the export of rare earths could reignite price pressures in the euro zone if they ripple through the global economy. According to Bloomberg, Muller emphasized that with interest rates at an appropriate level, European officials should be “patient” and closely monitor any developments that could push price pressures in either direction. "Patience is needed," Muller said, highlighting the delicate balancing act central bankers now face as they weigh inflation risks against economic growth.

The anxiety isn’t limited to Europe. On October 16, 2025, G7 finance ministers convened in Washington during the International Monetary Fund meetings, where the topic of China’s export controls dominated the agenda. Valdis Dombrovskis, European Economic Commissioner, told Reuters that G7 partners are united in their concern about China’s expanding export controls, which now cover not just a wider range of minerals but also the entire value chain, with “quite extensive extraterritorial provisions.” Dombrovskis said, “It was clear that G7 partners have shared concerns about those new extensive Chinese export controls, expanding both the scope of minerals covered, but also in terms of covering the value chain and having quite extensive extraterritorial provisions.”

In response, the G7 agreed to maintain a united front and coordinate their short-term response to China’s actions. The group committed to engaging directly with Chinese counterparts in an effort to seek immediate solutions, while also accelerating efforts to diversify their own supply chains. "We agreed on one hand to coordinate this work and our engagements with Chinese counterparts to seek some short-term solutions," Dombrovskis explained. "But also, more conceptually, it's clear that we need to continue the work, which is not new, on diversification and resilience of our supply chains."

This two-pronged approach—addressing immediate risks while building long-term resilience—reflects the urgency of the situation for advanced economies. The G7’s dependency on Chinese rare earths and battery materials leaves them exposed to supply disruptions that could drive up costs for manufacturers and consumers alike. Inflation, which has already been a thorny issue for central banks in recent years, could be stoked further if supply bottlenecks persist or worsen.

At the same time, the G7’s push to diversify suppliers is no easy task. Developing alternative sources of rare earths and battery materials requires significant investment, regulatory approvals, and, in many cases, overcoming environmental and political hurdles. Countries like Australia, Canada, and the United States have promising reserves, but scaling up production and processing capabilities will take years. In the interim, the threat of sudden Chinese export restrictions looms large over global markets.

For China, the calculus is complex. On one hand, export controls give Beijing powerful leverage in trade disputes and diplomatic negotiations. On the other, they risk accelerating the very diversification efforts that could erode China’s dominance in the long run. Analysts cited by the South China Morning Post suggest that the timing of these controls is closely linked to China’s efforts to stay ahead in the global battery race and to ensure that its military retains access to the most advanced technologies.

As the world watches how these export controls play out, the stakes couldn’t be higher. For the euro zone, as Muller noted, the risk of inflationary spillovers is real. For the G7, the challenge is to present a credible, coordinated response without triggering a full-blown trade war or supply crunch. And for China, the gamble is whether it can maintain its technological edge without provoking too strong a backlash from its trading partners.

In the months ahead, all eyes will be on the implementation of China’s new export controls and the effectiveness of the G7’s efforts to secure alternative supplies. The outcome will not only shape the future of global technology and industry but also determine how the world navigates the delicate balance between economic interdependence and strategic rivalry.