Key takeaways

Concentration and limited substitutability can transform the efficiency gains of global supply chains into significant vulnerabilities. The impact and consequences of a chokepoint depend on its underlying nature. For instance, the rare earths industry illustrates a persistent dependence on concentrated processing capacity. In contrast, flexibility and effective crisis management can significantly speed up recovery from temporary disruptions, as demonstrated by the hard disk drive (HDD) sector following the 2011 Thailand floods. Resilience measures should therefore be tailored to the specific vulnerability: alternative capacity and new technologies can address persistent dependencies, while inventories, supplier redundancy, and geographical flexibility are more effective for cushioning temporary shocks.

Critical minerals: a structural chokepoint

Demand for critical minerals, including rare earth elements (REEs), has surged in response to the global green and digital transitions. REEs are essential for permanent magnets used in electric vehicles and wind turbines, and minerals like antimony, gallium, and germanium are vital inputs for semiconductor production. These are used in a wide range of products, including medical devices, smartphones, satellite communications, and defence systems. China’s dominance in this sector is not due to physical scarcity but highly concentrated processing capacity. In 2025, China held roughly 60% of global REE reserves but dominated the downstream stages, accounting for approximately 90% of global capacity in separation, metal refining, and magnet manufacturing.

China achieved this dominance through long-term state industrial policy, such as tax rebates of up to 17% for metals introduced in 1985, which helped production surge more than sevenfold between 1985 and 1998. By the end of this period, China accounted for 85% of global REE production. Additionally, lax environmental regulations and technology transfers from foreign firms relocating to China further bolstered this position. Recent data indicates that Chinese entities filed 84% of global REE patents between 2019 and 2022. For gallium, a critical military input, China accounted for 99% of worldwide primary low-purity production in 2025.

Diversification can reduce dependence, but at a cost

Concerns regarding dependence on Chinese REEs are long-standing. Following a 2010 diplomatic incident, Japan successfully reduced China’s share of its REE imports from 80% to 40% through diversification and recycling. However, diversification has clear limits. Alternative supplies are often significantly more expensive than Chinese sources. Moreover, substitutability varies; Japan remains almost entirely dependent on China for lanthanum oxide used in high-end optical glass. Diversification efforts are also vulnerable to common shocks, as seen during the Covid-19 pandemic when disruptions outside China increased reliance on Chinese supplies.

Private sector mitigation actions when substitutes are limited

When substitution is difficult, inventories provide a primary line of defence. For example, when licensing requirements were announced in October 2025, exports of artificial diamonds from China rose to four times their normal monthly level as buyers stockpiled. Trade rerouting through ASEAN countries also offered temporary relief. However, these measures are finite. Inventories eventually run out, and governments can tighten enforcement against the circumvention of trade restrictions. A crackdown on smuggling in May 2025 effectively halted China’s exports of unwrought gallium, causing international prices to skyrocket and diverge sharply from domestic Chinese prices.

Natural disasters: a temporary chokepoint

The 2011 Thailand floods represented a temporary chokepoint. At the time, Thailand produced 40% of global HDDs. The floods caused a 55% year-on-year drop in production in the final quarter of 2011. Western Digital’s shipments fell from 52.2 million units in late 2010 to 28.5 million a year later. Despite the paralysis, production restarted within 46 days. This rapid resolution was enabled by shifting capacity to Malaysia, utilising inventories moved to safer sites before the floods, and retaining the entire 38,000-strong workforce on 75% of their salaries. Transparent communication with investors and a robust risk management framework also supported the recovery. Thailand has since strengthened its position as a vital source of US HDD imports.

Implications

Chokepoints are an inherent feature of specialised global supply chains. Efficiency gains from concentration and scale can create vulnerabilities when critical inputs are difficult to replace. Economic resilience should not be equated with reshoring, as this can sacrifice substantial gains from specialisation without necessarily providing proportionate protection. Instead, governments and firms should identify material vulnerabilities and choose resilience measures matching the risk. Persistent structural dependencies may justify investment in alternative capacity and technologies. For temporary disruptions, maintaining inventories and redundancy is more efficient. The challenge lies in balancing global efficiency with the capacity to absorb shocks.