Three weeks ago, the Chinese government and the Trump administration came to a very rough agreement on trade, tariffs, and the supply of vital materials each side respectively controlled. While the agreement was likely more of a temporary ceasefire in the trade rather than a more meaningful long-term armistice, it was meant to restore the supply of semiconductors to China and various rare earth components to the United States.
Yet here we sit, three weeks later, and Chinese authorities are playing go-slow on the approval of requests by Western companies for rare earth components critical to the manufacturing process.
As the relative impasse continues to drag on and gets passed up the corporate food chain, there are concerns that China’s go-slow on restoring vital export supplies could be a flashpoint for the trade conflict between Beijing and Washington to once again escalate.
According to a report from the Wall Street Journal:
Western companies say they are receiving barely enough magnets for their factories and have little visibility of future supplies. Firms are waiting weeks as Chinese authorities scrutinize their applications—only to be rejected in some cases. And applications for raw rare earths, which are used to make magnets, are rarely granted.
As a result, Western companies are concerned that the shortages could soon affect manufacturing. Companies are so desperate for magnets that they are opting for expensive airfreight whenever licenses are granted to prevent costly production shutdowns. Some manufacturers are experimenting with workarounds that would allow them to make their products without the most powerful magnets.
According to Neha Mukherjee, an analyst who specializes in rare earths at research firm Benchmark Minerals Intelligence:
“export restrictions have been paused on paper. However, ground reality is completely different,”
As of 2023, China accounted for 67.9% of the world’s total rare earth mineral production.
When the perspective is shifted to rare earth magnets, which are vital components in everything from cars to missiles, China controls 90% of the world’s supply.
After President Trump’s ‘Liberation Day’ tariffs and the tit-for-tat escalations of the U.S.-China trade war, the supply of rare earth magnets slowed to a relative trickle. According to trade figures, Chinese exports of rare earth magnets to the U.S. declined by 93% year-over-year in May.
As companies attempt to come to terms with this new, very deliberately induced supply chain issue, several major companies have slowed or even paused production, with Ford pausing production of its Explorer four-wheel drive model at its Michigan plants.
While export licenses have been issued in some cases, the Wall Street Journal is now reporting that:
“Chinese authorities are asking Western companies for sensitive details such as contact information of those buying their magnets and even designs of how their magnets are integrated into components like motors.”
Source: U.S Military
At the end of the day, Western policymakers and corporations handed China the keys to a vital component to a high proportion of high-tech goods manufacturing, with little regard to how it could be used against them in the future, all in the name of corporate profits.
The current conflict was always going to come to pass, with it being particularly obvious following the outbreak of the trade hostilities during President Trump’s first term. But ultimately, those almost 8 years to prepare have not left Western industry able to stand entirely on its own without Chinese-produced rare earth products.