New Policy:
Against the backdrop of escalating trade tensions between China and the United States, China announced in April 2024 that it would suspend the export of six heavy rare earth metals and rare earth magnets, requiring special permits for these products to be shipped abroad. This move is seen as a response to the Trump administration’s increase in tariffs on April 2.
Rare Earths: The “Vitamins” of Modern Industry
Rare earths comprise 17 metal elements, which are divided into light and heavy rare earths. Among them, heavy rare earths such as dysprosium (Dy) and terbium (Tb) are essential materials in high-end manufacturing industries, including electric vehicles, drones, and missile guidance systems, due to their significant ability to enhance the stability of magnets in high-temperature environments.
Currently, China dominates the global rare earth supply chain, providing approximately 90% of rare earth magnets and 60% of rare earth refining capacity. The restricted products, such as dysprosium oxide, are resources the U.S. military and electric vehicle industries heavily rely upon.
Policy Background
China has maintained a supportive stance toward global trade, hoping to promote globalization continuously. The recent export restrictions target the U.S. tariff policies against China, as these measures are intended to strengthen China’s negotiating position in future trade discussions by controlling key resource exports.
There is another reason for this policy. In recent years, the United States, European Union, and Japan have all pushed for diversification of the rare earth supply chain to reduce dependency on China. For example, U.S.-based MP Materials plans to build a magnet factory in Texas, while the EU has increased local resource development through the Critical Raw Materials Act. China’s export control policies are a defensive response to the “de-China-ification” of the rare earth industry.
Potential Impact of the Policy
| China: While countries like Australia and Myanmar have rare earth deposits, their refining technologies lag decades behind those of China. In the short term, the global community will still struggle to free itself from reliance on Chinese rare earths. However, prolonged export disruptions could damage China’s reputation as a reliable supplier and accelerate other nations’ searches for alternatives.
| United States: The U.S. military and high-tech industries will be the most directly affected. Companies like Lockheed Martin and Raytheon rely on Chinese rare earth magnets to produce precision-guided weapons; if Tesla and General Motors cannot obtain magnets promptly, the electric vehicle production capacity of these companies may face stagnation.
| Other Countries: While Japan and Germany are not explicitly named, the ban encompasses “all countries,” putting pressure on their automotive and electronics industries as well.
Future Outlook for the Policy
For China, suspending the export of key minerals is a reluctant measure to cope with trade pressures, as it could catalyze the diversification of the rare earth supply chain. For the United States, the situation will likely accelerate domestic rare earth mining and collaboration with allies, but it may take years to develop significant production capabilities.
Thus, the key to resolving these issues lies in how nations view globalization and trade imbalances. If negotiations can be facilitated, countries will prioritize market forces, refraining from weaponizing key products (chips) and key resources (rare earth). In such a scenario, the market can continue to promote the effective flow of various resources. This will be a win-win result, ultimately benefiting consumers globally, including consumers in China and America.
Magnet Manufacturer
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Image Source: Aclara-re & Cen.acs & Mp & Visualcapitalist
