Rare Earth Race

Recent geopolitical developments have brought renewed attention to Pakistan’s potential role as an important link in the global supply chain for rare earth elements (REEs). Pakistan’s mineral resource potential is estimated at approximately USD 6 trillion, with rare earth oxide (REO) reserves of around 500,000 tonnes. These reserves could position Pakistan as a potential Tier-2 supplier in the global rare earth elements market.

In October 2025, Pakistan reportedly shipped its first consignment of rare earth minerals to the United States under a USD 500 million agreement. The two countries also outlined a three-phase plan to expand mining and processing projects by 2028.

Rare earth elements (REEs) are a group of 17 metallic elements that have quietly become the backbone of modern electronics and a critical factor in the evolving global semiconductor race. Although these elements are relatively abundant in the Earth’s crust, global refining capacity remains heavily concentrated in a handful of countries, creating a strategic bottleneck in global supply chains.

According to the Rare Earth Elements Market Report 2026, the global rare earths market is projected to grow from USD 7.8 billion in 2026 to USD 15.4 billion by 2033.

At least 12 of the 17 rare earth elements (REEs) play indispensable roles in semiconductor manufacturing and AI infrastructure. For example, cerium (Ce) is used to polish silicon wafers to the ultra-smooth finish required for advanced semiconductor fabrication. Lanthanum (La) enhances the optical components employed in lithography systems that etch intricate circuit patterns onto silicon chips. Within semiconductor fabrication equipment, neodymium (Nd) and dysprosium (Dy) are essential for manufacturing high-performance permanent magnets that power precision motion systems and robotic machinery. Yttrium (Y), ytterbium (Yb), and neodymium (Nd) are also used in lasers, optical coatings, and advanced imaging systems that enable nanometre-scale precision during chip production.

The strategic importance of rare earth elements extends well beyond semiconductor manufacturing. They are critical to the broader artificial intelligence (AI) ecosystem, supporting the infrastructure on which AI systems depend. Data centres rely on rare earth magnets in cooling systems, hard disk drives, backup power generators, and water pumps. REEs are also used in electric motors, sensors, communication equipment, and other components essential to AI-enabled computing infrastructure.

Currently, the global supply chain for rare earth elements (REEs) is characterised by a pronounced structural imbalance. Although rare earth deposits are distributed across several regions, processing and refining capacity remains overwhelmingly concentrated in China. The country accounts for approximately 60% of global rare-earth mining, 91% of processing and refining capacity, and more than 94% of permanent-magnet production.

Many Western countries gradually scaled back or abandoned domestic REE processing because of stringent environmental regulations, high production costs, and limited commercial viability. Consequently, no Western country currently possesses large-scale commercial refining capacity comparable to China’s. Between 2020 and 2023, around 70% of U.S. rare earth imports originated from China. Until early 2024, the United States also shipped most of its domestically mined rare earth concentrates to China for processing before re-importing the refined materials. In 2025, China’s rare earth exports reached their highest level in recent years, exceeding 62,600 metric tonnes, further underscoring its central role in the global REE supply chain.

In October 2022, the United States introduced a sweeping set of export controls to limit China’s access to advanced computing technologies critical to developing frontier artificial intelligence (AI) systems and supercomputing capabilities. The measures restricted the export of advanced logic chips, including NVIDIA’s A100 and H100 processors, as well as a broad range of semiconductor manufacturing equipment. Washington also expanded the Foreign Direct Product Rule (FDPR), enabling it to restrict certain foreign-made chips produced using U.S. technology.

In 2023 and 2024, these controls were further expanded to cover advanced memory technologies and key semiconductor manufacturing tools, including lithography, etching, deposition, and related equipment. Despite these restrictions, China continued to make significant advances in AI development. In early 2025, Chinese researchers unveiled DeepSeek-R1, a high-performance reasoning model that reportedly achieved competitive results despite being trained on downgraded chips such as NVIDIA’s H800, a processor specifically designed to comply with U.S. export regulations.