China’s rare earth curbs threaten global auto supply chains

China’s rare earth curbs threaten global auto supply chains

China’s expanded export controls on critical rare earth elements have raised alarms across the global automotive and defence industries, with European and Japanese manufacturers warning that supply chain disruptions could begin within months. The move comes in retaliation for US President Donald Trump’s steep new tariffs — 145 percent on some Chinese goods — and is seen as a strategic escalation in the ongoing economic conflict, the Financial Times reported.

The new curbs, introduced in early April, target seven key rare earth materials, including dysprosium, terbium, and samarium — essential components in high-performance magnets used in electric vehicles (EVs), wind turbines, and military equipment such as fighter jets and missiles.

Automakers scramble to secure supplies

Industry insiders estimate that most carmakers and suppliers have only two to three months’ worth of magnet inventories. “If we don’t see magnet deliveries to the EU or Japan in that time or at least close to that, then I think we will see genuine problems in the automotive supply chain,” said Jan Giese, a metals trader at Frankfurt-based Tradium.

A senior executive from the automotive sector described the Chinese restrictions as “consequential” for companies like Tesla and ranked the severity as a “7 or 8” out of 10. He added that the move signals a shift in strategy from China — away from tariff tit-for-tat and toward targeted pressure that forces multinational companies to lobby their home governments for relief.

Strategic minerals for military and green tech

The focus of China’s new restrictions is on the “heavy” and “medium” rare earths that make magnets more heat-resistant — critical for high-stress applications in defence and hybrid vehicle systems. While the more abundant “light” rare earths like neodymium and praseodymium have not yet been included, analysts say Beijing retains the option to escalate further if trade tensions continue to mount.

“This gives China a big threat vector,” noted Cory Combs of Beijing-based consultancy Trivium, pointing out that China already commands a near-monopoly on heavy rare earth processing.

Licensing, re-export bans and market disruption

The new rules require exporters to obtain licences for each shipment of restricted minerals and prohibit the re-export of these materials to the United States. The actual enforcement, however, has been inconsistent — a pattern seen in China’s broader strategy since 2023, when it began curbing critical minerals in response to US export bans on advanced chips.

Chinese exporters have already declared force majeure on several shipments, withdrawing materials from the market and pushing up prices in a sector known for its opacity.

“The crucial question is how long they will take to process the export licences,” said Giese, adding that the delay is already stalling global trade in these key inputs.

Global rush to diversify supply chains

Japan, the EU and other allies are now scrambling to shore up alternative sources. Japan is backing expansion plans by Australia’s Lynas Rare Earths, which aims to produce dysprosium and terbium at its Malaysian facility by mid-2025.

A Japanese government official acknowledged that national stockpiles might offer temporary relief, but said, “The issue is whether we can build the new, alternative supply chain in time for our stockpile to survive this.”

Complicating the picture further, analysts warn that declining output from Myanmar — a major source of feedstock for Chinese rare earths — due to civil conflict is already straining Beijing’s domestic supply.

More than just economic warfare

The latest restrictions underscore the geopolitical leverage China wields in global green and military technologies. While past threats to cut off exports have often been blunted by economic self-interest, Beijing now appears more willing to test its advantage in rare earths, even if it means disrupting its own supply chains.

As the trade war with the US escalates, manufacturers worldwide are bracing for a turbulent few months — with magnet shortages potentially bringing EV production lines and defence projects to a standstill.