China’s grip on the world’s supply of rare earth minerals is becoming even tighter. This trend creates significant headwinds for industries that depend on these key materials. China now makes about 60% of the globe’s rare earth production. Even further, it recycles almost 90% of these materials, ensuring that it has a stranglehold over a significant and strategic sector. With recent export restrictions imposed by China’s Ministry of Commerce, firms are now required to apply for licenses to export several rare earth elements and magnets, amplifying concerns among defense and automotive industries.
In early April, China announced new export restrictions. This action is a crucial element of their strategy to address the growing body of international trade aggravations, particularly those spurred by U.S. tariffs. The restrictions went particularly hard on American businesses. Thousands of them rely on Chinese rare earths to fund their manufacturing processes. Following a trade truce reached between Washington and Beijing in Switzerland, China temporarily paused these restrictions for 28 American companies, allowing some breathing room.
One of the prime U.S. auto manufacturers to benefit from this temporary stay is one of the Big Three — General Motors, Ford and Stellantis. These licenses further signal China’s intent to maintain good ties with big industry stakeholders. Meanwhile, the nation continues to exercise sovereignty over its most prized assets.
China’s strategic chokehold on the rare earths market remains the more daunting hurdle as the world rushes to greener, high-tech innovations and renewable energy sources. As you may know, rare earth elements are essential ingredients in the production of electric vehicles (EVs). They are vital to cutting-edge technologies including robotics and defense systems. The defense industry is under historic stress. It used to produce components for submarines and fighter jets until it became heavily dependent on rare earths.
“Defense companies are in the front line of impact, given we need thousands of pounds of rare earths in each submarine and fighter jet.” – Baskaran
State and industry stakeholders have expressed concern that China’s monopoly on rare earth elements would lead to serious supply chain interruptions. William Bain pointed out how critical minerals like samarium are used to help make F-35 fighter jets. He warned that the biggest risk for these critical minerals is the current prohibitions.
“They can’t make them without that. And not having access to that is severely affecting both U.S. construction in that area, but also perhaps its national security if that remains in place.” – William Bain
The growing reality known as the target on our back highlights the supply and demand side of the equation. According to a RAND Corporation expert, the U.S. should work closely with the European Union and Australia to strengthen domestic production of rare earths. This entails putting in place strong incentives to procure critical minerals from allied countries.
“On the demand side, implementing incentives to procure minerals from allied nations—similar to the provisions in the Inflation Reduction Act—will be essential.” – Baskaran
China’s smart moves to improve their image and build trade connections To that end, they’ve voiced willingness to establish an “fast lane” that accelerate all export approval processes for qualifying export license applications originating from European Union companies. Such an approach would be consistent with China’s goal of using trade to secure friends and influence people while managing geopolitical headwinds.
The highest level officials of U.S. and Chinese governments recently returned to the negotiating table in London. They’re trying to cool historic grievances fueled by competition for rare-earth elements and modern AI. Ultimately, the negotiations are intended to de-escalate growing tensions due to China’s export restrictions and U.S. tariff policies.
While the easing of restrictions for specific American companies is a welcome turn of events, the implications beyond that are deeply troubling. Analysts voice skepticism over whether the defense industrial base is as concerned as their civilian counterparts about these potential export restrictions.
“I’m less clear whether defense is as worried as the civilian industries, but saying that, looking at the level of magnet production in the West, it is very small.” – Henry Sanderson
China’s rare earth export restrictions are a greater concern than an economic challenge. They further manufacture a national security threat for all nations—including ours—that continue to heavily rely on these critical materials. Countries are moving in the direction of cleaner technologies and more high-tech manufacturing. Access to rare earths will be a driving factor in who is competitively positioned.
“We’ve seen some relaxation over the weekend with licenses granted in sectors connected with robotics and electric vehicles, but if you take, for example, a critical mineral like samarium… that’s absolutely essential for F-35 fighter jet construction in the U.S.” – William Bain
Negotiations may be still ongoing, but strategies are already forming to overcome these obstacles. China’s stranglehold on rare earth minerals is becoming one of the major issues in the China-U.S.