Most dramatically, China has recently hardened the battleground by imposing export controls on rare earth materials. This decision is a major win for foreign companies working in the sector as well. This decision is intended to support the country’s domestic manufacturing bases, most notably in the case of magnets. The new rules promise to further accelerate the development of China’s permanent magnet producers. They will level the competitive playing field for global players.
Specifically, these new export controls, which are effective immediately, limit the amount of rare earth elements that can be exported out of the country. They are key enablers of much of today’s high-tech applications, from electric vehicles to smartphones to renewable energy technologies. China is making it harder for the U.S. to access these resources. This step is part of their focus on supporting U.S. industries and reducing dependency on foreign imports.
Faced with these new industrial regulations, Chinese magnet manufacturers have started to experience significant development reversal. And they’re quickly scaling up production to meet an overwhelming demand at home and abroad. Industry experts, including McKinsey & Company, argue that this new wave of local production will grease the wheels of innovation and drive down costs for consumers in China. Supporting this shift will enhance the competitive standing of U.S. businesses in international supply chains, as well.
Foreign companies’ operations are brought to a complete standstill by these export controls. Most other international manufacturers heavily rely on rare earth materials from China to manufacture their products. With limited access, they will always find it challenging to keep up with production output and the growing demands of the market. These same companies are taking a hard look at their supply chains. They could take the risk of looking elsewhere or gambling on developing their own domestic capacities.
This shift in policy comes amid rising tensions between China and various Western nations regarding trade practices and technology transfers. In this playbook, we explore how these export controls strategically counteract recent geopolitical pressures. Their goals are to protect national security by ensuring important resources do not leave China’s borders.