The global automotive industry could soon start reeling from one of China’s boldest moves in the trade war—restricting exports of several rare earth metals that are critical to the auto manufacturing, energy, and defense industries.
Earlier this month, China, which dominates the global rare earth and critical minerals supply chain, announced it would curb its exports of dysprosium, gadolinium, scandium, terbium, samarium, yttrium, and lutetium. These so-called “heavy” and “medium” rare earth elements are mostly used in automotive applications, including rotors and motors and transmission in electric vehicles and hybrids, as well as in the defense industry in parts of jets, missiles, and drones.
China Curbs Exports
Following Beijing’s move, Chinese exporters of these seven rare earth metals will need to apply for licenses to export, while re-export to the United States is banned. China placed 16 U.S. entities – mostly in the defense and aerospace sectors – on an export control list, limiting them from receiving dual-use goods.
This was not the first time Beijing has leveraged its dominance in rare earths in a trade war with its biggest rival. Back in December, China banned exports of antimony, gallium, and germanium to the U.S., minerals are used in specialty applications in chipmaking, defense and communications industries.
In 2023, China banned the export of technology to extract and separate rare earths in a bid to protect its rare earth industries.
China dominates rare earth minerals mining and processing and will still dominate globally at the end of this decade, although the share could be smaller as countries are exploring options to limit their reliance on Chinese materials.
Related: Hammerfest LNG Hits the Snooze Button Again—This Time on Purpose
China is expected to be the world’s top producer of rare earth elements in 2030, with a 54% share of the global market, followed by Australia at a distant second with 18%, estimates from the International Energy Agency (IEA) showed.
In refining rare earth elements, China is expected to have an even stronger grip on the global market, with a 77% share in 2030. The second-largest refiner at the end of the decade is set to be Malaysia, with a share of 12%, according to the IEA’s estimates.
Impact on Industries
While the Trump Administration has focused on slapping higher and higher tariffs on China, Beijing’s response has been more varied than the simple, endless tit-for-tat. China used its dominance in rare earth supply chains critical for the U.S. and Western defense, automotive, and energy industry.
Following the restriction of exports of the seven heavy and medium rare earth elements, shipments of these stopped as exporters scrambled to apply and waited on export licenses.
The exports were halted on April 4, sources told Reuters earlier this month.
“When asked by my clients when their cargoes will be able to leave China, we give them an estimated time of 60 days but it may actually take longer than that,” an anonymous China rare earth trader told Reuters.
The potential two-month-long wait for shipments to leave China with newly issued export licenses could be too long for many customers of these materials.
Most auto makers and their supply chain providers hold only two to three months’ supply of magnets, which are used in transmissions and rotors, metals traders told the Financial Times.
On a scale of 1 to 10, the Chinese export curbs are 7 or 8 in terms of severity and would be “consequential” for all automakers, including Tesla, Jan Giese, a metals trader at Tradium, a company based in Frankfurt, told FT.
If exporters wait for months to obtain their export licenses from China, there could be shortages at a global level, considering the fact that the stockpiles at the supply chain and automakers do not exceed three months.
“Heavy rare earth stockpile elements do not suffice to avoid potential turbulence of automotive supply chains,” a government official in Japan, a major automaker, told FT.
Analysts say that the U.S. is exposed to China’s rare earths export controls.
“The United States is particularly vulnerable for these supply chains,” analysts at the Critical Minerals Security program at the Center for Strategic and International Studies (CSIS), said last week, commenting on the Chinese export restrictions of the seven medium and heavy rare earths.
Until 2023, China accounted for 99% of global heavy rare earth elements (REEs) processing, with only minimal output from a refinery in Vietnam. However, that facility has been shut down for the past year due to a tax dispute, effectively giving China a monopoly over supply, CSIS’s Gracelin Baskaran and Meredith Schwartz wrote.
Apart from the global automotive industry, the Chinese export restrictions could affect U.S. defense technologies manufacturing as REEs are crucial for many of these, including F-35 fighter jets, Virginia- and Columbia-class submarines, Tomahawk missiles, radar systems, Predator unmanned aerial vehicles, and the Joint Direct Attack Munition series of smart bombs.
An F-35 fighter jet contains over 900 pounds of REEs, an Arleigh Burke-class DDG-51 destroyer needs about 5,200 pounds, while a Virginia-class submarine uses around 9,200 pounds of REEs, according to CSIS.
Domestic U.S. capabilities are not ready to fill the gap in case of a shortfall in REE supply, as there is no heavy rare earth separation happening in the United States at present, CSIS’s analyst said.
By Tsvetana Paraskova for Oilprice.com
More Top Reads From Oilprice.com
