China’s Rare Earth Export Freeze

National Security And Tariffs

Since early April, China has effectively shut off the global supply of several heavy rare earth elements and magnets critical to sectors ranging from auto manufacturing to aerospace defense. While the pause has been framed as a measure rooted in national security, its economic and geopolitical repercussions are increasingly difficult to ignore.

The export halt targets seven of the most chemically complex and strategically vital rare earths, including terbium, dysprosium, and samarium, alongside high-performance magnets derived from them.
Rare earths have always posed a paradox. Though they’re not geologically rare, the process of isolating and refining them is notoriously difficult and environmentally burdensome. It’s a dirty business, and China has long accepted the mess.

Over decades, it quietly constructed a near-monopoly, mining 70% of global supply and chemically processing 90% of it — a dominance reinforced by its grip on Myanmar’s output and significant slices of U.S. production.

Going To China?

In response, automakers and suppliers are weighing unconventional solutions, including moving parts of their manufacturing processes to China. Some are considering assembling electric motors domestically, shipping them to China for magnet installation, and reimporting them as finished goods—an approach that circumvents export restrictions since China’s rules currently apply to magnets but not to assembled components.

Such workarounds could increase costs and raise the risk of additional tariffs, but industry executives see them as necessary to avoid halting production lines. The alternative—idling plants—could have far more disruptive consequences.
Industry associations have also issued formal warnings to the U.S. government, indicating that vehicle production across multiple brands could slow or stop without immediate access to more rare-earth components.
While automakers are searching for alternate suppliers in Europe and Asia, current capacity outside China is insufficient to meet global demand. In parallel, some manufacturers are exploring less magnet-dependent technologies, including older motor designs and simplified vehicle features that rely on fewer or less specialized components.
The shortage is particularly severe for electric and hybrid vehicles, which require significantly more rare-earth content than conventional models. However, switching to gas-powered alternatives is constrained by environmental regulations and limited access to emissions credits, which automakers rely on to meet fuel economy standards.

With few viable alternatives, automakers may find themselves reversing the intended direction of recent industrial policy by increasing their operational footprint in China to keep assembly lines running at home.

Essential Components

The current restrictions target precisely the metals most indispensable for manufacturing magnets that retain strength under extreme heat — essential components for electric vehicles, drones, wind turbines, guided missiles, and jet fighters. Without these rare earths, much of the machinery powering the global economy and security infrastructure faces paralysis.

Carmakers in particular are starting to feel the sting. While some factories in Japan, anticipating future shocks, have built up over a year’s worth of inventory, Western manufacturers have not shown the same foresight.
Ford's week-long shutdown of its Explorer SUV line in Chicago signals broader ripple effects to come. And with China supplying roughly 90% of rare earth magnets globally, the options are limited.

Efforts to diversify the supply chain are not new. The 2010 standoff between China and Japan prompted Tokyo to back alternative sources, notably Australia’s Lynas. But these operations remain expensive, and stringent environmental standards in the U.S. and Europe have hampered growth. China, meanwhile, trains more chemical engineers in rare earths annually than the West can collectively muster.

A Critical Bargaining Chip

This time, the move appears more strategic than tactical. Chinese authorities have cited dual-use concerns — namely, the metals’ applications in both civilian industries and advanced military systems. Yet the timing raises questions. The export halt closely followed new U.S. tariffs on Chinese goods and Washington’s renewed curbs on semiconductor sales to Huawei.

While Beijing insists its export license system applies globally, the sequence of events suggests otherwise. China's message is not subtle: rare earths are no longer off-limits in trade disputes.
The United States and China appeared to reach a tentative easing of tensions last month, agreeing to reduce tariffs and temporarily suspend certain retaliatory measures.
But the rare earth issue remains unresolved. Beijing’s Commerce Ministry has yet to establish a clear framework for licensing exports, even as global industries clamor for clarity. Adding to the uncertainty, recent U.S. restrictions on chip technology reignited Chinese frustration, potentially complicating any path forward.

As long as China maintains its hold on rare earths and the West hesitates to absorb the costs of alternative sourcing, supply chains will remain hostage to political tides.

Disclaimer

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Credits

Photo by Dominik Vanyi / Unsplash.