As global power dynamics shift around critical raw materials, Canada is being increasingly viewed as a potential linchpin in the effort to rewire the world’s supply chains for rare earth elements (REEs). Following China’s recent export restrictions on key rare earths and high-performance magnets—materials essential to defense systems, electric vehicles, and next-gen electronics—the West is facing a reckoning. This pivot point has opened a geopolitical and economic window for Canada, but capitalizing on it will require overcoming structural, technical, and strategic challenges.

China’s Export Restrictions: A Calculated Geopolitical Gambit

In early 2025, China instituted a suspension of exports for six rare earth elements and select high-performance magnets. Given that China currently produces approximately 90% of the world’s refined rare earth elements, the announcement reverberated across industries, from aerospace and automotive to renewable energy and robotics. The affected materials—many of which are vital for military-grade hardware and clean energy technologies—now require export licenses, injecting fresh uncertainty into global supply chains. The move was widely interpreted as Beijing’s response to Western trade sanctions and technology bans. The policy shift not only underscored China’s ability to weaponize supply chains but also exposed the deep vulnerabilities of the U.S. and EU, both of which remain heavily reliant on Chinese-sourced REEs.

Canada’s Opportunity: Mineral Rich, But Not Yet Ready

Canada, long regarded as a global leader in mining, possesses the largest known reserves of critical minerals in North America, including rare earths. Its geological abundance spans nickel, lithium, cobalt, and uranium, positioning it well to fill the vacuum created by China's tightening grip. But potential is not production. While Canada's resource endowment is impressive, the country still lacks the large-scale, domestic refining capacity necessary to process REEs at a competitive scale. Notably, it wasn’t until 2024 that Canada inaugurated its first commercial rare earth processing facility in Saskatchewan. This project, capable of producing neodymium-praseodymium (NdPr)—a key ingredient in high-strength magnets—is a step forward, but still only a fraction of what's needed to challenge China’s dominance.

The China-Canada Connection: Ties That Bind

Ironically, part of Canada’s current critical mineral infrastructure has direct Chinese involvement. State-backed Chinese firms hold equity in several Canadian mining projects, particularly those related to lithium and cesium. Many of these raw materials are extracted in Canada and exported to China for final processing, further entrenching Canada within the very supply chain it seeks to disrupt. Recognizing this dependency, Canadian policymakers have started tightening foreign investment regulations, particularly where Chinese ownership is concerned. Ottawa’s recent efforts to shield the sector from foreign influence reflect a broader geopolitical recalibration toward strategic autonomy in critical materials.

Why Rare Earths Are So Complex—and Strategic

The rare earth supply chain is not merely about mining. It includes multiple stages—extraction, chemical separation, purification, and finally, manufacturing into specialized components. Each phase requires specific expertise, expensive technology, and carries significant environmental implications. That’s one reason why so much of the world’s REE ore is shipped to China—even from Western nations—for processing. China’s infrastructure is mature, cost-efficient, and minimally regulated by Western standards. In contrast, Canada faces higher environmental compliance costs and longer permitting times. While this ensures sustainable practices, it also makes scaling up prohibitively expensive and slow.

China’s Leverage: More Than a Market Leader

Beijing’s grip on the rare earths supply chain gives it potent geopolitical leverage. It has wielded this power before—notably during disputes with Japan in 2010 and more recently in reaction to U.S. sanctions. Export restrictions targeting REEs used in missile guidance systems, stealth technologies, and EV drivetrains send a clear message: China is prepared to tie access to strategic resources to its foreign policy objectives. This pressure is prompting Western nations to fast-track alternatives. But building out mining and processing infrastructure from scratch—especially in a high-cost, highly regulated environment like Canada—will take upwards of 10–15 years.

Short-Term Shock, Long-Term Realignment

In the short term, China’s restrictions are expected to create price spikes, production delays, and increased costs for high-tech and defense manufacturers across North America and Europe. Emergency stockpiling and limited supply-chain rerouting may alleviate some pressure, but can’t fully compensate for China's loss of supply. Medium- to long-term, a pivot is underway. Nations like Canada and Australia are pushing for upstream and downstream integration. In Canada’s case, that means not just mining but also investing in refining, magnet production, and battery manufacturing. Western governments are stepping in with subsidies, tax incentives, and investment-screening mechanisms to help domestic players compete.

Challenges That Could Slow Canada’s Rise

Despite its mineral richness, Canada faces numerous hurdles:

• Processing Gaps: There is a critical lack of domestic facilities capable of refining heavy REEs, a gap that forces reliance on China or Europe for value-added processes.
• Capital Barriers: The high upfront cost and complexity of REE projects deter private investors. Price volatility adds another layer of risk.
• Environmental Regulations: While necessary, Canada's rigorous regulatory landscape slows project approvals and drives up costs.
• Indigenous Relations: Many mining zones intersect with Indigenous lands, making community consultation, consent, and benefit-sharing vital but time-consuming.
• Supply Chain Fragmentation: Canada lacks a full end-to-end domestic ecosystem, from ore to finished product, leaving strategic gaps in value capture.

Comparative Outlook: Canada vs. China

Investor Takeaway: Is Canada the Next REE Superpower?

From an investor’s lens, Canada offers long-term promise but comes with high upfront risk. The market is nascent, infrastructure limited, and geopolitical tailwinds volatile. That said, first-mover advantage in projects aligned with government subsidies and sustainability mandates could deliver outsize returns over the next decade. Key investment themes to watch include:

• Expansion of refining capabilities, particularly for heavy REEs
• Integration of downstream sectors like magnet manufacturing
• Public-private partnerships in processing and environmental tech
• Government policy shifts on foreign investment and resource nationalism

Conclusion: Strategic Patience Required

Canada is not yet ready to replace China in the rare earths supply chain—but it’s making deliberate strides. The country’s mining pedigree, political stability, and ESG-friendly regulatory framework offer a compelling foundation. But without massive investment, streamlined permitting, and deeper integration across the value chain, China will retain its near-monopoly status for years. Still, a diversified global supply chain is no longer optional—it’s a strategic imperative. And Canada, though slower out of the gate, could become a key node in a future where rare earths are no longer a singular point of leverage, but a multilateral resource supporting global innovation and resilience.