On April 4, the Chinese Ministry of Commerce announced new export restrictions on seven rare earth elements (REEs) and rare earth magnets as part of a broader response to trade measures unveiled by U.S. President Donald Trump on April 2. The measures had included a baseline tariff of at least 10% on all countries and reciprocal tariffs against countries with which the U.S. has a high trade deficit, including a 34% tariff on all imports from China. While the U.S. and China have since agreed to temporarily lower import tariffs for 90 days for products from the other country to 30% and 10% respectively as bilateral negotiations continue, authorities in China have reportedly not lifted the rare earths-related restrictions yet.
The export restrictions currently apply to seven out of the seventeen existing rare earth elements, namely samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. The new restrictions do not constitute a full export ban; however, companies will have to apply for licenses to export the affected rare earth elements and magnets going forward. Notably, the licenses are said to be tied to specific shipments and are not reusable, meaning that companies will be required to secure licenses for each new export shipment.
Given China’s global dominance in both the processing of rare earth elements as well as the production of magnets made with them, export restrictions could disrupt global manufacturing operations in a wide range of industries, including the automotive, electronics, medical technology, aerospace and defense sectors in the coming months.
Reliance on REEs and magnets from China threatens manufacturing industries globally
China currently handles around 70 % of the world’s rare earth extraction and almost all rare earth processing activities. The seven rare earth elements affected by the new export restrictions are mined almost entirely in China and Myanmar, Chinese companies also account for roughly 90% of the world’s rare earth magnet production. While some companies in Japan and Germany can produce smaller quantities of rare earth magnets, they still rely on raw material supply from China to keep production running.
Even though the export restrictions were announced in retaliation for import tariffs imposed by the U.S., Chinese customs officials have reportedly started blocking shipments of the affected materials and products regardless of destination. Notably, the strictness with which officials are enforcing the new measures appears to differ across the country, with some officials still letting magnets made with only a small amount of REEs through customs without licenses in the weeks since the measures came into force. Recent reports also suggest that Chinese officials have started to stop some shipments of lower-performance rare earth magnets due to confusion over the extent of the new export restrictions. Lower-performance magnets are often used in household appliances and consumer electronics, while high-performance magnets are used in products such as cars, wind turbines, or military jets.
At the same time, the implementation of the new license system appears to be progressing despite the temporary 90-day tariff truce with the U.S. that resulted in the rollback of other non-tariff related measures. As of early June, the authorization of a limited number of export licenses for rare earth magnets has been confirmed publicly, mainly for shipments heading to Europe and Southeast Asia, including an export license for a supplier of Germany-based automotive manufacturer Volkswagen AG. A small number of licenses has reportedly been issued to U.S.-based companies in late May, but no details were disclosed.
In the days following the announcement of new export curbs, American Elements, a Los Angeles-based producer of advanced materials, confirmed that it had been told that it would likely take around 45 days for licenses to be issued, but it currently remains unclear how long the process is expected to take once the new system is set up fully. Initial comments from affected companies suggest that the approval process is often complex and time-consuming due to the amount of information required by Chinese authorities. As a result, manufacturers around the world could face weeks-long shipping delays, with even longer waiting times likely in industries relevant for national security such as the defense sector.
Automotive manufacturers warn of imminent production halts due to REE-related shortages
Less than two months after the restrictions were announced, the operational impact is already noticeable in some sectors, most notably the automotive industry, where a growing number of industry groups are warning of production cuts in the coming weeks.
According to recent estimates, automotive manufacturers in Europe and North America could start running out of rare earth supplies by mid-June. With many automotive production sites operating on a just-in-time system, even short periods of supply disruptions could have a negative impact on production output. Most recently, the German Association of the Automotive Industry warned that the slow license approval process and clearance delays of approved export shipments are threatening to disrupt the production of critical components in one of Europe’s biggest automotive markets. Germany produced almost a third of all automotive vehicles made in the European Union in 2023. A trade group representing car manufacturers such as General Motors Company, Toyota Motor Corporation, Volkswagen AG, and Hyundai Motor Company, had already reached out to the Trump Administration on May 9 with similar concerns. The industry group warned that without a sufficient supply of REEs and magnets, automotive companies would no longer be able to manufacture a range of critical components, including automatic transmissions, throttle bodies, alternators, motors, sensors, seat belts, speakers, lights, steering systems, and cameras. In India, another major automotive market, industry groups have warned that some local automotive companies might be forced to halt operations by early June, with rare earth inventories of some Indian automotive manufacturers expected to have already run out as of late May.
A representative of Maruti Suzuki India Limited has since come out publicly to say that India’s largest automaker does not anticipate any immediate production impacts, however, some sources suggest the company might have to halt production of at least one car model soon if the supply issues are not resolved. Bajaj Auto Limited and TVS Motor Company Ltd., two India-based manufacturers of motorcycles, have publicly warned of production impacts within weeks if no solution is found. Robert Bosch GmbH, an automotive supplier and manufacturer of consumer electronics based in Germany, confirmed that an unspecified number of its suppliers are facing operational disruptions due to shipment delays. BMW Group, another Germany-based automotive manufacturer, has also acknowledged that some of its supplies are facing potential rare earth shortages, but is reportedly not seeing an operational impact yet. With the Chinese government showing no sign of easing export controls any time soon, the automotive sector could see a notable jump in production disruptions in the coming weeks as manufacturers exhaust existing stockpiles.
Electronics, medical and defense industries remain at risk of business disruptions
Although automotive manufacturers appear to be facing the most immediate risk of production disruptions, companies in other sectors will likely see operational impacts as well if shipment delays turn into prolonged supply shortages.
Rare earths are also critical in the making of many medical devices used in diagnostics and patient treatment. GE Healthcare Technologies, Inc., which manufactures magnetic resonance imagining (MRI) contrast solutions that rely on gadolinium, has said that it has access to enough gadolinium for now, but is reportedly looking into finding suppliers outside of China. Bayer AG, a pharmaceutical and biotechnology company based in Germany, firmed that its gadolinium supply originates in China, but does not expect any near-term manufacturing impacts due to existing stockpiles. Meanwhile, China-based Chengdu New Radiomedicine Technology Co., Ltd. (NRT) and Shanghai Greenearth Chemicals Co., Ltd., both of which sell rare earth materials to customers in the medical technology and pharmaceutical sectors, have warned that the new regulations could effectively halt exports, highlighting the risk that the industry could begin to see shortages as well, once existing inventories have been used.
While military applications only account for around 5% of the rare earth magnet market, Chinese officials have claimed that the export controls are driven at least in part by concerns over dual-use items, components and products than can be used in military and civilian applications, made with them. A range of defense technologies rely heavily on rare earth elements, including fighter jets, submarines, missiles, radar systems, and unmanned aerial vehicles. With no immediate alternative to supply from China, the sector could be left particularly exposed if export restrictions remain in place.
Meanwhile, recent reports indicate that Chinese authorities might be willing to loosen export controls of rare earth elements for some customers in the semiconductor industry, following a meeting between semiconductor makers from China and Europe hosted by China’s Ministry of Commerce in late May, but no further details have been disclosed at the time of writing.
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