China’s recent application of export controls on rare earth materials has raised alarm. As we all know, this decision will have a profound effect on foreign companies doing business in this bleeding edge industry. This action strengthens China’s domestic production of high-tech products. It aims particularly at magnet manufacturing, which has quickly expanded here because of these limitations.
In early October 2023, the Chinese government announced new export controls. They appealed to national security concerns and the desire to manage our resources more sustainably. Rare earth elements are key components in the manufacture of many cutting edge technologies from electric vehicles, smartphones and other electronics to renewable energy systems. As more strategic to China’s economic ambitions, however, they have increased in severity.
Now, China is using export restrictions to protect and empower its homegrown industries. This action especially helps U.S. magnet manufacturers that rely on these critical materials. The country has welcomed a significant addition to its magnet industry’s domestic production capacity. Firms are quickly adjusting and retooling to capitalize on this increased demand, both locally and internationally. Analysts agree that this has the potential to create one of the largest realignments of global supply chains in decades. Foreign companies will find it harder than ever to be able to source these critical materials.
In addition to impacting foreign manufacturers, the export controls serve as a catalyst for investment in domestic mining and processing operations within China. The federal government is intensively managing its own supply chains. This initiative furthers its bigger aims of cutting dependence on foreign technology and increasing overall domestic self-sufficiency. This tactical decision would help cement China’s control of the rare earth market where they are already the clear leader.
Unsurprisingly, foreign companies affected by these sudden changes are now struggling. They are then having a difficult time maintaining a stable supply of rare earth elements necessary for their operations. Per ISP, many are looking at non-Chinese alternatives, or working to develop relationships with domestic Chinese companies to lessen the effects of these restrictions. Industry stakeholders are concerned about increased costs and possible supply chain impacts. Unlike the other industries, they rely on these materials to produce finished goods, amplifying these concerns further.
Many experts agree that these new, more stringent controls will help drive innovation. In the long run, they will encourage investments in alternative materials and technologies outside of China as well. Traditional powers such as Australia and the United States are increasing their own rare earth production. They have their own, justifiable motives to try and lower dependence on Chinese exports, given the restrictions China has placed on shipments.