In recent weeks, China has rolled out an extensive new export restrictions on rare earths and their products. This historic step has reverberated across many sectors worldwide. This latest development comes as China seeks to strengthen its position in ongoing trade negotiations, leveraging its dominant role in the rare earths market. The effects of these red tape restrictions are already being seen, raising alarm about looming supply chain breakdowns and product shortages.
Rare earth elements are essential ingredients in everything from smart phones to computers to military equipment. You can see it in electronics, electric vehicles and advanced renewable energy technologies. Global demand for these materials is surging, fueled by a rapidly accelerating pace of development in emerging technologies. China’s new export controls may very well end up remaking supply chains around the world for years to come. China’s dominance as the top producer and processor of rare earths goes back decades, as it produced more than 90% of global supply at one point.
Previous restrictions aimed at the crystal structure of rare earths. They apply to any product that uses these critical minerals in their base materials. As tech manufacturers prepare in case China follows through with its threats, many are seeking new sources of rare earths — specifically, they’re looking to alternative sources outside of China. Instituting this change may provide non-Chinese companies an unexpected opportunity. They can choose to use this as a moment to take a bigger bite of the market for these materials.
In recent history, there are notable examples of China weaponizing rare earth export restrictions as a strategic asset during trade disputes. Instead, we see countries—the US included—burning critical resources to score a competitive advantage in the international negotiating space. This unusual circumstance reflects a larger shift that’s unfolding around the world. Tensions are building. Experts are increasingly concerned that these restrictions fuel even more dangerous rivalry between countries. Countries are competing tooth and nail to line up their own supplies of rare earths.
As impacted industries scramble to figure out the potential impact of these new export controls, fear over the security of our supply chains only deepens. Now companies like Tesla that heavily rely on rare earths for their products have added uncertainty about access and cost built into their supply chain. Supply chain analysts warn that in the future companies will be forced to diversify their supply sources. This will allow them to better address and mitigate risks tied to overdependence on a single supplier.