China-supplied critical minerals in the supply chains of EVs, batteries, and solar technology. To mitigate these rare earth element shortages, it has even moved to reduce friction with Western auto manufacturers. Around 60% of the world’s critical materials, for example, are currently sourced from China. Most recently, the Chinese Ministry of Commerce introduced export restrictions on gallium and germanium, causing alarm bells to ring. Just a few months ago in early April, officials made these restrictions illegal. This was in response to tariff increases that U.S. President Donald Trump has imposed on Chinese goods.
China has issued more licenses to rare earth key suppliers. This decision is a huge win for the big three U.S. auto manufacturers—General Motors, Ford, and Stellantis, maker of Jeep. This decision represents a major diplomatic coup. It follows the latest round of trade negotiations in Paris last week between Chinese Commerce Minister Wang Wentao and EU Trade Commissioner Maros Sefcovic. These negotiations have set the stage for a better climate for American and European auto industries. They have sounded the alarm on imminent production jeopardy due to the continuing rare earth scarcity.
China is generally willing to establish a “green channel” for eligible export license application. This new special measure aims to accelerate the drug approval process for European Union companies. This hand-wave to market forces indicates that China sees the writing on the wall as demand for rare earths and critical minerals spike. With the global clean energy transition accelerating, this demand is poised to explode.
China is the world’s dominant producer, or supplier, of rare earths. It has been reluctant to share this critical resource widely and freely. Since these April restrictions went into effect, over 100 auto supplier plants have closed. Production lines are idled since they are currently encountering massive delays in receiving required export licenses.
Maximilian Butek, an executive director and board member of the German Chamber of Commerce in China, expressed skepticism about the efficiency of China’s license approval process, stating, “It is a huge bureaucratic monster that they’ve created and I’m not sure if they really can now speed up the process and give the licenses to those who need them.”
Japan’s Suzuki Motor Company has already felt the repercussions of China’s rare earth curbs, having suspended production of its Swift car model due to material shortages. The demand for rare earths is surging. According to industry leaders, continued and persistent supply chain interruptions will lead to the risk of further production stoppages in the auto industry.
Butek highlighted the precarious situation facing manufacturers: “Generally, global stocks of these magnets are quite low. Given that China is the bulk global supplier, it has meant that, in the absence of these export licenses, those stocks have been depleting progressively since the start of April.”
As the European bloc deals with the reality of its high dependency on Chinese resources, the urgency to diversify supply chains has intensified. Butek emphasized the urgency of the matter: “We’re gradually coming into a very, very critical moment whereby those stocks are now being exhausted, and we are potentially going to see production stoppages.”
Reacting to the tide that seems to have turned against them, industry groups are scrambling to respond. They’re calling on U.S. and European companies to source rare earths beyond China, and to decrease overall dependence on China’s grip on this industry. U.S. officials have long seen China’s dominance of rare earth production as a strategic threat. This change coincides with the global trend toward cleaner energy.