I am tempted to question how well this works among generally open economies.
China still needs to sell this stuff.
The US and Japan still need to buy it.
What prevents third parties from buying through European fronts and such?
Granted that this will increase the cost to the end user... Which is probably the point.
No, they are an ever growing user of those metals. They are doing the same thing with base metals such as tin and copper.
They do not need to sell it. Every toy, every appliance, every motor or servo or piece of ordnance that has a cobalt-Samarium or Nd.Fe.B magnet made there needs the rare earths. China is one of the largest miners and refiners of tin. They suspended exports. Go look at the tin, nickel, and cobalt price curves on the London Metals Market and see what they have done.
Try building a jet engine or machining tool bits without cobalt.
China has been building PC factories and wire drawing mills and solder factories for a long time, and they are not finished yet.
We are going to actually have to get our hands dirty and do things here, or we'll be strangled.
Now you’ve hit upon the issue:
There were contracts for the materials written, and money has changed hands.
The companies producing it are now not getting paid, and the people who paid for the materials are not receiving it.
People are still mining it, however, and people are still building stuff with the material, which means they all still need to be paid by someone.
So, the Chinese could say, “Well, we can make that here instead - move your facility into China. We’ll give you a good price on the materials, you can produce your goods, and the PLA will take a 51% of the company you have here in China.”
Or, the Chinese can say, “We don’t care about the contract, and in fact we hope your company that makes those goods (missiles, batteries, GPS, refinery processing fluid, etc.) goes out of business.
Either way, we are being muscled out of something strategic. My guess is Taiwan and the South China Sea. For Japan, the Kurile Islands perhaps.