China recently implemented draconian new export controls on rare earth materials. This ruling affects not only US firms, but foreign firms as well. These controls are meant to strictly regulate all critical minerals. These minerals are very important to high tech applications—from electronics to renewable energy technologies.
These export restrictions were enacted to safeguard China’s strategic priorities and make sure that China’s domestic industries can flourish. Rare earth elements, such as neodymium and dysprosium, are essential components in creating strong permanent magnets. These magnets are essential for electric vehicles, wind turbines, and consumer electronics. China, looking to bolster its own production capabilities, wants to control the export of these materials to the U.S. and others. Secondly, this strategy would limit foreign competitors’ access.
In reaction to these controls, China’s magnet manufacturing sector has been on a boilerplate expansion. It’s this change that local companies are taking advantage of with the shrinking supply of rare earth materials from overseas providers. This comparative advantage is allowing them to win out competitively on the global stage. On the supply side, the domestic demand for high-performance magnets has skyrocketed, pushing manufacturers to expand production and invest in new technologies.
To avoid supply disruptions, China’s magnet manufacturers are moving to increase production of higher-quality products. In the process, they are carving a niche for themselves as industry leaders. Restoring this local connection makes good economic sense. It further bolsters China’s dominance in the global supply chain for high-tech components.
The new export controls have worried foreign companies that depend on Chinese rare earth materials. Without full access to these vital resources, many foreign manufacturers will not be able to produce at their current capacity. This scenario would be a recipe for higher costs and longer product delivery times for sectors that rely on rare earth elements.
Analysts are optimistic that such breakthroughs would push foreign enterprises to seek alternative suppliers for rare earth compounds. Alternately, they could decide to invest in the capabilities to produce these things at home. In doing so, they put themselves directly on the line to decrease risks from China’s worsening export controls. Their aim is to keep a predictable supply chain for their members’ operations.