China’s recently announced export controls on seven rare earths have sent reverberations throughout the importing German market, as this China rare earth shock continues. Put into effect on April 4, these controls were an immediate reaction to the large-scale trade tariffs which Washington had levied against Beijing. That is why the German economy is currently experiencing its worst supply shock. With almost two months of severely limited access, their stockpiles of rare earths are all but exhausted.
This situation was made worse for German importers by China’s near-monopoly over these critical materials. They’ve told us that their stores are running out quickly because of these limitations. With China’s resulting chokehold over the rare earth market, sourcing alternatives has been especially difficult for these companies.
The export controls have caused great harm to the semiconductor supply chain for key industries in Germany. These emerging industries rely heavily on rare earths for their production processes. In particular, two major importers have stressed the severe consequences these controls have had on their operations. They simply can’t sustain production at today’s demand levels. With the supply chain still facing pressures and their inventories running low, the urgency for a resolution grows.
In what may be an omen of a new policy direction, Beijing recently announced its intention to relax its rare earth export restrictions. This otherwise strategic move meets hurdles from European technology export controls. These regulations are likely to push back the return to normal trade relations by months at least. Uncertainty surrounding recent developments leave German companies in a bind. They are contending with a lack of available product and overcoming regulatory challenges.
While the seven rare earths subject to China’s current and proposed export restrictions haven’t been named, their significance is immense. These materials are critical for many other high-tech applications, especially electronics and renewable energy technologies. A coalition of German importers and manufacturers are watching China very closely. Their eyes are on change in European export controls as the situation develops.