Shortage of Rare Earths Shows Danger of China’s Control Over U.S. Manufacturing

US Supply Chain Vulnerability Exposed by Rare Earth Magnet Shortage

Automakers from the US and other regions have issued stark warnings that vehicle production could be halted within weeks due to China’s restrictions on rare earth magnet exports. A report highlights how manufacturers are scrambling for alternatives, even considering bringing some production back to China.

These tiny, yet crucial components are integral to electric vehicle motors, audio systems, adjustable seating, and even windshield wipers, relying on minerals like neodymium and terbium. Notably, China dominates the market, controlling about 90% of the global supply, including the refinement and manufacturing processes that turn these minerals into functional parts.

Ford recently had to stop making Explorer SUVs at its Chicago plant because of this shortage. Similarly, some European factories are already offline. An industry organization warned the administration last month that more shutdowns could follow if supplies from the rare earth sector aren’t secured.

This situation escalated in April when China implemented a licensing requirement for exporting rare earth magnets. While outright bans weren’t enforced, the slowdown in license approvals left shipments in limbo. Although exporting individual magnets is nearly impossible, some supply chain officials noted that China still permits the export of motors and components containing magnets, which incentivizes manufacturers to move some operations back to China.

“If you want to export magnets, they won’t let you do that. But, if it’s part of a motor made in China, that’s acceptable,” one supply chain executive commented.

This shift could undo the progress made in bringing production back to the US post-pandemic. Some automakers contemplate producing motors in the US, sending them to China for magnet installation, and then importing them. It’s a lengthier and costlier process, not to mention it exposes them to additional tariffs, but executives argue it’s preferable to potential factory closures.

The White House believed it had eased these export rules during a temporary trade truce, but approvals from Beijing remain slow. The administration accused China of violating the agreement, while Chinese officials criticized US restrictions on AI chips and student visas.

Industry experts have indicated that immediate alternatives are scarce. Supply in Europe and Southeast Asia cannot meet current demand, and establishing rare earth refining and magnet production in the US could take years.

Returning to traditional gas-powered vehicles isn’t a viable option either, as regulatory emissions credits are already sold out until 2027. Some companies are even exploring the removal of features that depend on these magnets, such as advanced speaker systems and power-adjustable seating, to conserve supply.

The impact of the rare earth magnet shortage extends beyond electric vehicles and hybrids; traditional cars are affected as well. The report emphasizes that rare earth magnets are found in nearly all modern vehicles, meaning shortages could disrupt the entire automotive sector regardless of the type of propulsion.

This crisis underscores the significant hurdles facing US industries as they strive to develop advanced manufacturing without access to critical inputs dominated by China. If there’s no swift, coordinated effort to bolster rare earth capabilities domestically or with trusted partners, the US risks facing similar vulnerabilities in the future.