China’s rare earth export halt deepens supply crisis for US and European industries

A labourer works at a site of a rare earth metals mine at Nancheng county, Jiangxi province. (File photo/Reuters)

Factories across the United States and Europe are facing worsening shortages of rare earth metals after China suspended almost all exports of seven key elements, along with the powerful magnets made from them, in early April. The supply crunch is threatening to shutter production lines in industries ranging from automotive to defence as manufacturers scramble to secure alternative sources, the New York Times reported.

China’s export halt—officially justified as a military security measure but widely seen as retaliation in its escalating trade dispute with Washington—has upended global supply chains and reignited fears about the world’s dependence on Chinese rare earth processing.

What are rare earths and why are they crucial?

Rare earths are a group of 17 metals that, despite the name, are relatively abundant. The difficulty lies in separating them from one another during processing—a complex, multi-stage procedure requiring toxic chemicals and specialised expertise. These elements are vital to modern manufacturing. They power small electric motors in vehicles, wind turbines, semiconductors, medical devices, and a wide array of military hardware.

Rare earth magnets, up to 15 times stronger than conventional iron magnets, are indispensable in automotive applications, particularly for electric motors exposed to high heat. Heavy rare earths like dysprosium and terbium are key to making these magnets heat-resistant.

China’s dominance in rare earths

China controls not only mining but also 90% of global rare earth chemical processing. Its dominance is especially pronounced in the seven metals it has now restricted—dysprosium, gadolinium, lutetium, samarium, scandium, terbium, and yttrium—which are among the hardest to process.

Heavy rare earth ores are primarily mined in China and Myanmar, with a rich band of deposits centred in southern China’s Longnan valley. China also processes nearly half of US production and all of Myanmar’s output.

How rare earth mining operates in China

Mining and refining in China’s rare earth sector remain highly opaque. In Longnan, for example, miners use crude methods to leach rare earths from clay hills using ammonium sulphate and oxalic acid, a process that results in both environmental damage and a highly purified product. Historically controlled by organised crime, the region is now dominated by state-supported refineries that feed China’s grip on the global market.

Industries most exposed to the shortage

The automotive sector is the largest consumer of the restricted rare earths. Electric and luxury vehicles rely heavily on heat-resistant rare earth magnets for dozens of small motors in components like seats, steering systems, and drive units. Ford recently closed its Chicago SUV plant for a week due to magnet shortages.

Defence applications are another flashpoint. Samarium, one of the restricted metals, is essential for missile guidance systems and fighter jet components, while yttrium and scandium support laser systems and lightweight aerospace materials.

China’s export controls and geopolitical tensions

China claims the export restrictions are driven by national security concerns, citing the metals’ dual-use in civilian and military technologies. US officials argue the move is retaliation for the Trump administration’s steep tariff hikes earlier this spring.

Notably, Beijing insists the restrictions apply globally, not just to the US, complicating efforts to classify them as retaliatory under trade agreements. Meanwhile, procedural delays in China’s new export licensing regime have left many European buyers in limbo, though some shipments—such as to Volkswagen—have resumed.

Lessons from past disruptions

This is not the first time China has used rare earth exports as leverage. In 2010, it briefly cut off supplies to Japan during a territorial dispute, prompting Japan to diversify its sourcing and build up stockpiles. Some Japanese industries now hold up to 18 months’ worth of key rare earths, a precaution other countries failed to match.

Attempts by the US and Europe to build their own rare earth industries have faltered due to high costs, environmental hurdles, and a lack of specialised expertise. China, by contrast, has 39 universities training rare earth chemists; the US has none.

What happens next?

A recent US-China trade agreement reached in Geneva eased tariffs and non-tariff barriers, but China’s rare earth controls remain in place. While a few Detroit automakers have received limited shipments, European factories are already facing disruptions.

China’s Ministry of Commerce is under pressure to streamline its cumbersome licensing process. Western businesses are urging Beijing to adopt multi-month or annual licences to stabilise supply chains. Without such reforms, critical shortages are likely to intensify in the months ahead, placing further strain on already fragile US and European manufacturing.