China, well-known for its major reserves of rare earth elements, has recently increased export controls. This step intensifies the country’s monopoly over these critical materials. This move, which has garnered attention from various sectors worldwide, has implications for foreign companies and the global supply chain.
Rare earth elements are key ingredients in many high-tech applications, from electronics to renewable energy technologies and defense applications. China controls roughly 37% of the world’s rare earth reserves. It has inarguably weaponized this resource to help strengthen its own industries at home. The country was the first to use export controls as a tool to restrict rare earths from flowing out of the country. These measures were intended to strengthen growth in its domestic manufacturing base, particularly in magnet production.
In recent years, China’s tough measures have contributed to rapid growth of its own domestic magnet manufacturers. To that end, Chinese companies have focused on local production and cutting dependence on foreign players. So, they have exponentially increased their capacity to manufacture their high-performance magnets that are critical for electric vehicles and wind turbines. This strategic prioritization is consistent with the federal government catchall’s goals of achieving technological self-sufficiency and innovation.
The effect on foreign companies has been no less astounding. International companies who rely on Chinese rare earths are reeling from increasing prices and costs. At the same time, they’re looking down the barrel of some serious supply chain disruptions. As a result, they need to look for other places. They are eager to invest in building up their own rare earth processing capabilities. Yet, these efforts can take a tremendous amount of time and monetary resource, creating a very challenging atmosphere for these companies.
The geopolitical landscape around rare earths has gotten much more complicated. Countries that rely heavily on Chinese exports are currently having to think about how to reduce their vulnerabilities. Many countries are jumping with both feet into national supply chains. Meanwhile, some others are establishing collaborations with countries such as Australia and the United States, which hosts large deposits of rare earth. These two efforts are a step toward building a more resilient, diversified supply chain less dependent on China.
This is partially due to the rising global demand for rare earth elements. This boom is fueled in part by the long-term shift to cleaner technologies, making the competition more pressing than ever before. China’s dominance of rare earth exports is poised to determine the future of its domestic industries, too. This regulatory control will further shape the international trade dynamics in essential materials, as well.