Chinese Export Controls on Rare Earth Metals Threaten Global Automotive Industry
Recent export controls imposed by China on rare earth metals threaten to halt car production, as stocks of essential magnets are expected to run out within months if Beijing completely stops its exports, reported the Financial Times.
In early April, China expanded its export restrictions to include seven rare earth elements and vital magnets for electric cars, wind turbines, and fighter jets, in response to the steep tariffs imposed by former U.S. President Donald Trump, which rose to 145%.
Storage of Materials
Government officials, traders, and executives at automotive firms have indicated that with estimates suggesting that inventories will last between three to six months, companies will expedite efforts to stockpile more materials and seek alternative supplies to avoid significant disruptions.
Jan Giese, a metal trader with Tradium, based in Frankfurt, noted that clients were surprised, and it appears that most car manufacturers and their suppliers only have enough magnets to last two to three months.
Giese added to the British newspaper that if shipments of magnets do not reach the European Union or Japan within that timeframe, or at least soon thereafter, serious issues will arise in the automotive supply chain.
China’s new regulations focus primarily on “heavy” and “medium” rare earth metals that enable the production of high-performance magnets capable of withstanding high temperatures, such as dysprosium, terbium, and samarium. These metals are crucial for military industries, such as jet aircraft, missiles, and drones, as well as for the motors and transmissions heavily used in electric and hybrid vehicles.
The newspaper quoted a senior automotive executive who stated that stringent restrictions on these metals would have “severe consequences” for Tesla and all other car manufacturers, describing the export controls as a “7 or 8” on a scale of 1 to 10 in terms of severity.
Retaliation
The executive described it as a form of “retaliation,” suggesting that the Chinese government could indicate, “Well, we won’t respond in kind regarding the tariff rate any longer, but we will hurt you, America, and we will encourage companies to urge their governments to change tariff policies.”
Rare earth metals are commonly found in the Earth’s crust, but they are difficult to extract at low costs and in an environmentally friendly manner. China nearly monopolizes the processing of heavy rare earth metals.
Cory Combs from the Beijing-based consultancy Tervium pointed out that “light” rare earth metals, such as neodymium and praseodymium, which are used more extensively in magnets, were not targeted, giving Beijing a “significant threat source” to expand controls if the trade war escalates.
China’s rules require exporters to obtain licenses for each shipment of materials abroad, and it has expanded its scope to prohibit re-exports to the United States. However, the enforcement of restrictions that have gradually included an increasing array of essential metals since 2023, in response to the U.S. ban on China’s access to chip technology, has not been comprehensive.
Chinese exporters have already declared force majeure on shipments of rare earth metals and magnets heading overseas and have withdrawn materials designated for sale from the market, adding to the already opaque commodity prices.
Hopes
Japan and other countries pin their hopes on easing China’s grip on heavy rare earth metals through the Australian company Lynas, which is set to expand its Malaysian processing site to produce dysprosium and terbium by mid-2025, according to the newspaper.
A Japanese government official stated that stocks of heavy rare earth metals are insufficient to prevent potential disruptions in automotive supply chains, and national stocks would provide additional support beyond the two to three months of supplies held by automotive manufacturers.
He added, “The issue lies in how quickly we can build a new alternative supply chain in time for our inventory to withstand this crisis.”
It remains unclear from the Chinese government’s announcements since April 2 how Beijing plans to implement the latest export controls.
Analysts indicated that the export controls come at a time when China is facing a decline in raw materials necessary for heavy rare earths due to the civil war in Myanmar, meaning that an export ban would bolster local supplies.
They noted that in recent years, China has been reluctant to block shipments that could harm its economic interests, such as gallium, while shipments of other metals like antimony, used in lead production, have been heavily restricted.
Giese posed the critical question: “How long will it take to process export licenses?”
