China hits back at US tariffs with export controls on key rare earths

BEIJING/LONDON - China placed export restrictions on rare earth elements on April 4 as part of its sweeping response to US President Donald Trump’s tariffs, squeezing supply to the West of minerals used to make weapons, electronics and a range of consumer goods.

The move, which Beijing had long hinted was possible, further ratchets up trade tensions between the world’s two largest economies and leaves American manufacturers scrambling for fresh supplies of the critical minerals they have relied upon for decades.

China produces around 90 per cent of the world’s rare earths, a group of 17 elements used across the defense, electric vehicle, energy and electronics industries. The United States has only one rare earths mine and most of its supply comes from China.

Beijing announced the controls late on April 4 as part of a broader package of tariffs and company restrictions in retaliation for Mr Trump’s decision to hike tariffs against most Chinese products to 54 per cent.

The export curbs include not only mined minerals but permanent magnets and other finished products that will be difficult to replace, analysts said.

The move, which affects exports to all countries, not just the US, is the latest demonstration of China’s ability to weaponise its dominance over the mining and processing of the critical minerals.

Seven categories of medium and heavy rare earths, including samarium, gadolinium, terbium, dysprosium, lutetium, scandium and yttrium-related items, will be placed on an export control list as of April 4, according to a Ministry of Commerce release.

Lockheed Martin, Tesla and Apple are among the US companies that use Chinese rare earths in their supply chains.

“China made that list strategically,” said Mr Mel Sanderson, a director at American Rare Earths, which is building a Wyoming rare earths mine it hopes to open by 2029, and co-chair of the Critical Minerals Institute trade group. “They picked the things that are crucial for the US economy.”

While the export controls stop short of an outright ban, Beijing can throttle shipments by restricting the amount of export licenses it issues.

China’s move will create “a scramble for access to the limited sources of alternative supply – namely in Japan and South Korea,” said Mr Ryan Castilloux, founder of consultancy Adamas Intelligence.

‘Willing to escalate’

Two industry sources said Chinese export restrictions on some rare earths are a concern for some US aerospace manufacturers because they are sole-sourced from China for use in avionics.

RTX and Honeywell declined comment. Boeing and GE did not respond to requests for comment.

The US government has stockpiles of some rare earths, but not enough to supply its defense contractors in perpetuity.

Beijing has already imposed outright bans on the export of three metals to the US and slapped export controls on many others.

The moves to restrict heavy rare earths are especially important because China has even tighter control over these elements, said David Merriman at consultancy Project Blue.

“There is currently only one HREE (heavy rare earth element) focused operation outside of China, Myanmar and Laos,” he said, adding that China has close involvement in supply chains from Myanmar and Laos.

That mine, Serra Verde in Brazil, ships minerals to China for processing, Mr Merriman added.

“China is willing to escalate,” said Mr Nathan Picarsic, co-founder of the geopolitical consulting firm Horizon Advisory. “This is likely an opening salvo in an iterative game of negotiation with the US.”

Galvanise West

China dominates the complex and dirty refining process for rare earths and controls output via a quota system that it has tightened.

April 4’s move is likely to galvanise efforts in the West to build alternative supply chains, according to Mercator Institute for China Studies analyst Jacob Gunter. Progress toward that goal has been slow.

“It’s going to take time,” said Mr Mark Smith, CEO of NioCorp Developments, which has permits for a US$1.2 billion (S$1.6 billion) rare earths mine in Nebraska but needs financing.

Shares of NioCorp fell 4.8 per cent on April 4. Shares of MP Materials - which owns the only US rare earths mine and relies in part on China for processing - fell 8 per cent.

Representatives for MP were not immediately available to comment.

Massachusetts-based rare earths processing startup Phoenix Tailings, which recycles the metals from electronic waste and other sources, aims to boost its annual production from 40 metric tonnes today to 4,000 metric tonnes by 2027.

“China’s moves just further encourages us to double down on our expansion plans,” said Phoenix CEO Nick Myers.

For companies that buy equipment from rare earths industry suppliers, the worry is compounded that they may lose access to important machinery that is made in China.

“The real concern for us is whether this trade conflict grows further,” said Mr Wade Senti, president of Florida-based Advanced Magnet Lab. REUTERS

Join ST's Telegram channel and get the latest breaking news delivered to you.