• G7 nations are actively discussing the creation of price floors for rare earth production and potential taxes on China's exports, though no final decisions have been made, according to people familiar with the matter.
  • The talks signal a decisive shift toward coordinated industrial policy, following a recent U.S. Defense Department deal with MP Materials that established a de facto price support of $110 per kilogram.
  • China's control of over 85% of global rare earth processing capacity gives it significant leverage over supply chains for electric vehicles, electronics, and military equipment, prompting the Western response.

Efforts by G7 countries to secure critical mineral supply chains have advanced to detailed discussions on implementing price floors for rare earth elements and imposing taxes on Chinese exports, according to sources briefed on the negotiations. The talks, which are still in the preliminary stages, represent a significant escalation in the West's strategy to counter China's dominance in a sector vital to national security and the green energy transition.

The discussions follow a landmark move by the U.S. Department of Defense, which recently invested $400 million in MP Materials, acquiring a 15% stake and establishing a price support agreement for its output at nearly double the current Chinese market rate. This agreement, setting a price of around $110 per kilogram compared to China's $52, is being viewed as a potential model for a broader G7-wide mechanism. "The MP Materials deal is a proof of concept," said one source, who spoke on condition of anonymity because the talks are private. "It demonstrates a willingness to use government capital to create a viable, non-Chinese alternative."

China's strategic position is formidable, controlling approximately 60% of global rare earth production and over 85% of the smelting and separation capacity. This dominance has allowed it to influence global prices, often keeping them low enough to deter investment in Western mining projects. The recent deliberations among G7 finance and trade officials aim to create a sustainable economic environment for producers outside of China to operate. A price floor would provide the market certainty needed to attract long-term investment, which has been lacking.

The potential for export taxes on Chinese rare earths is seen as a more confrontational tool, one that could provoke retaliation. Officials are carefully weighing the risks of escalating a trade conflict against the urgent need to de-risk strategic supply chains. The discussions have gained urgency following China's own imposition of export controls on germanium, gallium, and specific rare earth technologies.

Market reaction to the evolving policy landscape has been swift. Shares of Western rare earth companies like MP Materials surged 60% on the news of the U.S. investment, while Australia’s Lynas Rare Earths saw a 20% rise. With global prices for key materials like neodymium-praseodymium oxide below $60 per kilogram, analysts estimate about half of non-Chinese projects are uneconomical, highlighting the necessity of government intervention.

While the G7 talks are ongoing, the lack of a final decision underscores the complexity of aligning multiple nations on a cohesive strategy. The European Union and Japan, for instance, have historically been more cautious about policies that could be viewed as protectionist. When reached for comment, a spokesperson for the U.S. Treasury Department declined to discuss specifics but reiterated a commitment to "working with allies to strengthen the resilience of our critical supply chains."

The move toward price supports and potential tariffs marks a fundamental departure from decades of free-market orthodoxy in mineral policy. If implemented, it could lead to a fragmented global market with a lower-priced Chinese system and a higher-priced, government-backed Western alternative, reshaping sourcing strategies for industries from automotive to defense for years to come.