China is imposing sweeping new export controls on rare earth materials and related tech components, citing national security reasons. The rules will require licenses for any foreign company exporting products containing minimal amounts of Chinese-origin rare earths or using Chinese processing technologies.

This development marks a significant escalation in global supply chain tensions. Rare earths are central to high-tech goods, batteries, electric vehicles, and defence applications. Many supply chains currently rely on concentrated Chinese production, making this policy a strategic lever over the global tech industry.

Why it matters for trade finance

The new controls add complexity and risk to cross-border trade. Exporters and buyers will need to assess origin risk much more rigorously. Trade finance providers, banks, export credit agencies, insurers, must now contend with greater scrutiny on licensing, provenance, and regulatory compliance. Guarantees or documentary credits could carry latent exposure if a shipment is later deemed noncompliant.

Smaller firms, particularly in emerging markets, are especially vulnerable. The global trade finance gap, estimated at around US$2.5 trillion, already constrains many SMEs from accessing reliable trade credit. Under tighter export control regimes, filtering that gap through additional regulatory barriers may further restrict liquidity precisely where it is needed most.

Strategic implications and responses

Much depends on enforcement. If licensing processes remain opaque, delays could multiply, and insurers may impose steep premiums. Export finance institutions will need to refine risk assessment for trade flows involving critical minerals and electronics.

One possible reaction is reshoring or nearshoring: firms may seek to localise part of their supply chain to reduce dependence on Chinese inputs. However, aggressive reshoring carries risk: the OECD warns that excessive localisation could reduce global trade by up to 18 % and shrink GDP by as much as 12 % in some countries.

Another response is chain restructuring and supplier diversification. Strategic "rewiring" of supply network links can reduce systemic risk significantly without sacrificing output.Trade finance providers can support this by underwriting transitional financing for firms shifting their supply base.

Technology can also help. Emerging tools are evolving as mechanisms to enhance supply chain visibility, predicting hidden links and risks without requiring raw data sharing across firms. This may help finance institutions better price risk and monitor compliance.

Outlook: balancing sovereignty and integration

China's move underscores that resource controlling nations now wield leverage not just in trade policy but in the architecture of supply chains themselves. For trade finance, this is not just a matter of tariffs or credit risk, it's a shift in how capital, regulation, and sovereignty intersect.

While the controls may accelerate investment in rare earth alternatives or new supply hubs (e.g., in Australia, Africa, the U.S.), the transitional period will be fraught. Firms with weak capital buffers may struggle to adapt.

Ultimately, the successful trade finance providers will be those who integrate regulatory insight with predictive technology and flexible risk structuring. The new controls are both a warning and an opportunity: the geography of supply is changing, and those who finance its future must change with it.

https://www.ft.com/content/c4b2c5d9-c82f-401e-b763-bc9581019cb7

This article represents the views of the author and not necessarily those of ICC.