In July 2023, China announced new export controls on seven rare earth elements and magnets, spurring fears of a global supply shortage. Sellers of medium and heavy rare earths are required to get export licenses from China’s Ministry of Commerce. As a result, this new requirement has the potential to significantly harm entire industries that depend on these critical materials.
Rare earth elements and magnets are critical parts of defense, energy, and automotive technologies. China is the dominant player in the market for nearly every single one of these elements. The new export controls will only exacerbate already established supply chain vulnerabilities. The Center for Strategic & International Studies has raised the alarm. The United States is in no position to fill any of those gaps that may result from China’s actions.
In other words, China chose these particular export controls as retaliation for the continuing increase in tariffs from the United States. This reality particularly worsened during the Trump administration. In response, China plans to leverage its overwhelming dominance of the rare earth industry. If enacted, this move would significantly increase and deepen the competition between Chinese companies and American manufacturers. The Trump administration has gone so far as to entertain the idea of imposing new all-import tariffs on critical minerals as a retaliatory measure.
Recent comments from Elon Musk, CEO of Tesla, indicate that private industry views this competitive landscape as a terrifying prospect. This year, we expect to manufacture at least 5,000 units of the Optimus humanoid robot. Yet Musk is reportedly concerned that China’s export controls would provide a competitive advantage to Chinese manufacturers in this nascent market. Unitree Robotics and AgiBot to hit mass production of humanoid robots in 2023. This fast-moving development will likely increase the competition in the industry.
“China wants some assurances that these aren’t used for military purposes, which obviously they’re not. They’re just going into a humanoid robot,” – Elon Musk
Even as these export restrictions present challenges, Musk told investors Tesla is still focused on its speedy production ramp. He quipped that their company’s future depends on not just large-scale autonomous vehicles, but billions of millions of autonomous humanoid robots.
The confluence of events underscores the increasingly precarious state of global supply chains for key emerging technologies. Given that this is an industry China will soon be more closely guarding against export, the ramifications of such controls could be felt industry-wide. International trade policy and technological change have converged in ways that speak to a pressing need. In turn, the U.S. should rapidly move to replace those critical supplies with alternative sources.