Rare-earth magnet squeeze reignites US-China trade tensions

Rare-earth magnet squeeze reignites US-China trade tensions

Two weeks after China agreed to loosen rare-earth export controls in exchange for concessions from the US, Western manufacturers say the promised relief hasn’t materialised. Applications for exporting magnets—vital to everything from electric vehicles to defence systems—are being delayed, scrutinized, or outright rejected by Chinese authorities, pushing companies into crisis mode and threatening to reignite trade tensions between Washington and Beijing, the Wall Street Journal reported.

Magnets delayed, factories strained

The shortage stems from Beijing’s export-control system, introduced in April after President Trump imposed new tariffs on Chinese goods. While nominally aimed at regulating military-sensitive exports, the restrictions have allowed Chinese authorities to effectively ration supply. Exports of rare-earth magnets to the US dropped by 93% in May compared to the previous year, forcing Ford to temporarily halt production of its Explorer SUV at its Chicago plant.

Western companies say they’re now operating “hand to mouth,” rushing to secure even minimal quantities of magnets via airfreight to avoid costly factory shutdowns. Lisa Drake, Ford’s vice president for industrial planning of batteries and electric vehicles, admitted the automaker was constantly “moving things around” to stay operational.

China holds the supply-chain power

China produces 90% of the world’s most powerful rare-earth magnets. Though Beijing assured the US earlier this month that it would resume exports, the reality on the ground tells a different story. Chinese authorities are not only dragging out application reviews, but they are also demanding sensitive data—such as design blueprints and buyer details—under the pretext of national security. Applications that omit such disclosures often languish or are rejected outright, pushing businesses to reapply and restart a 45-day waiting period.

Analysts, like Neha Mukherjee from Benchmark Mineral Intelligence, say these hurdles reflect “bureaucratic drag” and not a genuine easing of restrictions. Some industry insiders believe China is intentionally slow-walking approvals to maintain political leverage and prevent stockpiling by foreign buyers.

Western responses and growing fears

While some Chinese state-linked suppliers are receiving export licences faster, smaller private firms are still facing months-long delays. Western manufacturers, including German industry groups, are calling on their governments to pressure Beijing. However, many are also beginning to accept that the restrictions could be a long-term fixture of the geopolitical landscape.

To cope, some magnet users are redesigning products to use less-powerful, non-restricted magnets—such as ferrite-based alternatives—even though these replacements offer lower performance. In high-performance sectors like AI servers and electric vehicles, such substitutions are not always feasible. Some Chinese suppliers have even suggested new magnet formulations that avoid restricted elements like dysprosium and terbium.

Trade truce under strain

US President Donald Trump had hailed the rare-earth agreement as a sign of restored cooperation, writing on Truth Social that “full magnets, and any necessary rare earths, will be supplied up front by China.” However, the short six-month limit on newly approved licences and the ongoing application hurdles indicate otherwise.

“There are thousands of applications [Chinese authorities] have received,” one importer said. “The system is slow and burdensome.”

While some licences are trickling through, the inconsistency is forcing automakers and electronics companies to absorb unexpected logistics costs. Companies are choosing expensive airfreight over slower shipping to prevent shutdowns, inflating operational expenses.

The current impasse illustrates how China can weaponize its dominance over critical minerals. Unless the export bottlenecks are resolved, the magnet shortage may mark yet another flashpoint in the already frayed US-China relationship.