Rising Alarms Over the Control of Rare Earths
A Critical Disruption Amid the Trade War
The United States is currently facing a critical situation due to the interruption of rare earth supplies by China, a strategic resource essential for the technology and automotive industries. On April 4, in the midst of escalating trade tensions, the Chinese government abruptly halted exports of rare earth magnets to any country, marking a new chapter in its trade war with the United States.
Hopes Dashed After the Trade Truce
Despite both powers reaching a trade truce in mid-May, Chinese restrictions remain in place. U.S. authorities hoped China would ease its stance on magnet trade, but that has not happened. The result is a direct impact on supply chains, especially for American automakers.
The Automotive Industry Hit the Hardest
Automakers have been among the most affected by China’s decision. Factories in the Midwest and the South are already anticipating production cuts in the coming days and weeks. Rare earth magnets are crucial for electric motors that control essential functions such as brakes, steering, and fuel injectors. A single power-adjustable seat in a luxury car can contain up to 12 magnets.
Licensing System and Factory Shutdowns
Following the announcement from Beijing, a new licensing system was imposed for future exports. Since then, China’s Ministry of Commerce has been slow to grant licenses, and only a limited number of European and American companies have been able to secure permits, worsening the global supply shortage.
The situation has been further aggravated by the temporary suspension of operations at several Chinese magnet factories, which have halted production while awaiting the necessary permits. This has created significant bottlenecks in supply chains, with consequences already being felt across various industries.
China’s Supremacy in the Rare Earth Industry
China dominates the market, accounting for 90% of the approximately 182,000 tons of high-performance rare earth magnets produced annually worldwide. The remainder comes mainly from Japan and Vietnam. In contrast, the United States produces only a fraction, although new plants in South Carolina and Texas are expected to begin full operations this year.
China’s Technological and Educational Advantage
China holds an overwhelming competitive advantage. Its state-owned industries operate with low environmental compliance costs and nearly unlimited access to government resources, allowing them to build large-scale refineries and factories. Additionally, the country has invested heavily in research and education, with 39 universities offering specialized rare earth chemistry programs. No such educational programs currently exist in the United States.
Critical Dependence and Strategic Consequences
Another key issue is that China refines over 99% of the so-called heavy rare earths, which are essential for manufacturing magnets capable of withstanding high temperatures—vital for sectors such as automotive and semiconductors.
Meanwhile, the only rare earth mine in the United States, located in Mountain Pass, California, ceased operations in 1998 after an environmental incident. This reliance on foreign sources places the United States in a strategically vulnerable position, with significant economic, technological, and geopolitical implications.