GoKawiilWhen China tightened export licences on seven rare-earth elements in April 2025, Western governments responded in the same way as they have to every other critical-minerals shock of the past five years. The European Union accelerated the issuing of extraction permits under the Critical Raw Materials Act. The United States expanded subsidies for domestic refining of the minerals under the Inflation Reduction Act. The Minerals Security Partnership, an initiative launched in 2022 by 14 economies, brought in more producing partner countries.
Each response was based on the same diagnosis: that the mineral supply problem is geological and geographical, and that the solution is to extract more, refine more and source from more places. That diagnosis is only half right. It misses what is now the binding constraint: intellectual property.
How the rush for critical minerals is neglecting human needs
For the most strategically important materials — heavy rare-earth elements, gallium, germanium, silicon, lithium and graphite — the supply chain choke point is no longer at the mine, or even at the refinery. It is in the intellectual property that governs how the raw material is transformed into something useful1.
The raw mineral and the patent for processing it are often owned by different parties, frequently in different jurisdictions and increasingly in nations with trade relations that have moved from competitive to adversarial.
For example, a handful of Chinese, Japanese, South Korean and US firms hold patents for key processes: magnetic separation for rare-earth oxides; processing of graphite for battery anodes; nickel manganese cobalt and lithium iron phosphate cathode chemistries; processes for growing gallium nitride crystals for electronics; and purifying semiconductor-grade silicon.
The result of such a concentrated structure of patent holding is a market failure that geographical diversification cannot fix. Australia can mine all the heavy rare-earth elements it wants, but without access to the magnetic-separation intellectual property, the country cannot produce a usable permanent magnet. And Indonesia can refine as much nickel as it likes, but without the cathode-chemistry patents, it cannot produce a battery cell.
A refinery built without access to intellectual property produces an input that the host country can’t use or sell. This is why the EU’s headline targets under the Critical Raw Materials Act — 10% domestic extraction and 40% domestic processing by 2030 — are necessary, but insufficient. The Inflation Reduction Act; the US-government-led Project Vault, a partnership to set up a strategic reserve of critical minerals; the Minerals Security Partnership; and Japan’s and South Korea’s stockpile programmes have the same flaw.
The political response — to subsidize the parts of the supply chain that are not protected by intellectual property — produces refineries that cannot deliver finished products, but that have a considerable fiscal cost.
The economics were laid out in 1962 by US economist Kenneth Arrow, who showed that technological knowledge is a partial public good that is costly to produce but cheap to copy2. Patent law redresses this imbalance by granting time-limited rights for exclusive use3. The unintended consequence is that when two assets are essential for production, and they are held by different parties under different legal regimes, markets cannot combine them without help4.
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