Germany and Japan have signed a new agreement to secure critical minerals as both nations begin confronting the consequences of their dependence upon China. German Chancellor Friedrich Merz met Japanese Prime Minister Sanae Takaichi in Tokyo on October 28, where the two governments agreed to diversify their sources of raw materials, develop alternative supply chains, and protect technologies essential to their manufacturing industries. For decades, Western governments encouraged their industries to become dependent upon China for the very materials necessary to sustain their economies. Now they are discovering that an economic dependency can become a strategic vulnerability the moment political relations deteriorate.
The agreement is particularly significant because Germany and Japan are two of the world’s most important industrial economies. Both depend heavily upon manufacturing, automotive production, advanced machinery, electronics, and technologies that require specialized minerals. China dominates the processing of many rare earth elements, which are essential for high-performance magnets used in electric motors, wind turbines, industrial equipment, aircraft, and military systems. It is not enough to possess a mineral deposit somewhere in the world. The material must be extracted, separated, refined, and manufactured into a usable product. China spent decades building that infrastructure while Western politicians became increasingly convinced that they could abandon domestic production and simply import whatever their industries required.
Takaichi stated that Japan and Germany would work to diversify critical mineral supplies and develop alternative sources while protecting sensitive technologies. Merz acknowledged that Japan, Germany, and the European Union must reduce their dependence upon concentrated supply chains. The joint statement expressed grave concern over the use of economic coercion, including arbitrary export restrictions and retaliatory measures. Neither government needed to name China directly. Everyone understands which country possesses the ability to disrupt these industries. Japan still obtains approximately 60% of its rare earth supplies from China despite spending more than a decade attempting to reduce that dependence.
Japan learned this lesson back in 2010 when a territorial dispute with China coincided with disruptions to rare earth shipments. Tokyo responded by investing in alternative suppliers, including Australia’s Lynas, and supporting additional processing capacity outside China. That diversification helped reduce Japan’s exposure, but it did not eliminate the problem. Sixteen years later, Japan remains heavily dependent upon Chinese materials, particularly certain heavy rare earth elements that are difficult to source and process elsewhere. This demonstrates how difficult it is to rebuild an industrial supply chain once production has become concentrated in another country. Governments can sign agreements in a single afternoon. Developing mines, refineries, and manufacturing facilities can take years.
The latest confrontation escalated after Takaichi suggested in November 2025 that Japan could become militarily involved if China attacked Taiwan under circumstances threatening Japanese security. Beijing responded in January 2026 by restricting exports of dual-use products to Japanese military end users. Additional Chinese restrictions targeted Japanese companies and organizations during the year. These measures illustrate how the Taiwan dispute is extending into economic relations. Japan is not merely concerned about the possibility of military confrontation in the Taiwan Strait. Its manufacturers must now consider whether their access to essential industrial materials could be interrupted by a diplomatic disagreement.
Germany faces a similar problem, although its vulnerability has developed through different political decisions. German manufacturers built extensive commercial relationships with China while Berlin became increasingly dependent upon Russian energy. The confrontation with Russia exposed the risks associated with concentrated energy supplies, and German industry has struggled with the consequences of higher costs and economic uncertainty. Now the government is confronting its dependence upon Chinese raw materials. The German automotive industry requires rare earth magnets for electric motors, while machinery manufacturers depend upon specialized metals and components that cannot always be replaced quickly. Germany spent decades building an industrial economy around access to reliable energy and international supply chains. Both assumptions have been severely challenged.
The new German-Japanese agreement includes plans for joint purchasing arrangements, co-financing of mining and processing projects, and cooperation between companies seeking supplies in third countries. Germany’s Economy Ministry specifically identified joint offtake agreements and financing as tools for supporting new raw material projects.
The problem is that Germany and Japan are hardly alone in pursuing these supplies. The United States has been working with allies to develop alternative critical mineral supply chains, including proposals for coordinated pricing arrangements intended to protect producers from Chinese competition. Washington has also expanded cooperation with Japan on rare earths and other strategic materials. Australia, Canada, and numerous African and South American countries are attracting greater attention because of their mineral resources. Yet deposits alone do not guarantee an economically viable supply. Investors must consider infrastructure, political stability, environmental regulations, financing costs, and the time required to bring production online. The competition for reliable supplies is intensifying precisely because so many governments neglected these issues for decades.
China understands the importance of controlling the processing stage. A country may possess substantial lithium, cobalt, or rare earth deposits, but if those materials must be shipped to China for refining, the dependency has not been eliminated. This is why Beijing’s position is so powerful. Its advantage is not simply geological. It has developed an industrial ecosystem capable of processing materials and supplying manufacturers on a scale that competitors cannot immediately replicate. China can use that position commercially, and export controls demonstrate how such capabilities can become instruments of foreign policy. Western governments are now attempting to rebuild industrial capacity that they previously allowed to migrate overseas.
There is also an important distinction between lithium and rare earth elements. Lithium is essential for many rechargeable batteries, while rare earth elements are particularly important in permanent magnets and other specialized technologies. They are not interchangeable commodities, and each has its own production and processing challenges. Governments frequently group them together under the heading of critical minerals, but securing a lithium supply does not resolve a shortage of dysprosium or terbium.
The German-Japanese partnership also extends beyond minerals. The two governments announced cooperation in artificial intelligence, cybersecurity, advanced technologies, and defense. Germany is even examining possible participation in Japan’s next-generation combat aircraft program, although no specific commitment has been announced. Japan is already working with Britain and Italy on a future fighter aircraft, while Germany’s separate European program with France and Spain has faced industrial disagreements. These developments demonstrate how economic and military considerations are becoming increasingly interconnected. A secure supply of critical minerals is necessary not only for consumer products but also for aircraft, missiles, radar systems, and other defense technologies.
We are entering a period when the availability of essential commodities will increasingly influence economic policy, investment decisions, and international relations. Germany and Japan are attempting to protect their industries from disruptions they can no longer afford to ignore. Whether they succeed will depend upon their willingness to support actual production rather than simply announce ambitious agreements. China spent decades building its position while other governments assumed that international trade would always remain open. Now those governments are discovering that dependence carries a price, and the bill is coming due at precisely the moment geopolitical tensions are escalating.