The confrontation between China and the United States has affected the global rare earth supply chain

The confrontation between China and the United States over tariff policies has affected rare earths, an important mineral. US President Trump has instructed an investigation into actual imports, while China has imposed export controls. The intensified confrontation over rare earths will have an impact on the global supply chain.

On April 15, Trump signed a presidential order to launch a security risk investigation into the import of important minerals, including rare earths and uranium. Trump regards the dependence on procurement from a few countries such as China as a problem, and criticized that “these countries are widely involved in price manipulation, arbitrary export restrictions, and abuse of supply chain dominance.”

The investigation is based on Section 232 of the US Trade Expansion Act. US Secretary of Commerce Lutnick will make recommendations on tariffs, safeguard measures (emergency import restrictions), domestic production and processing in the United States, recycling and other measures. The law requires a final report to be submitted within 270 days.

Rare earths are used in a wide range of products such as pure electric vehicles (EVs). The subjects of the investigation include semi-finished products such as semiconductor wafers (substrates) that use important minerals, permanent magnets, motors, EVs, batteries, and smartphones that use rare earths.

Rare earth is a resource that is clearly dependent on China. According to data from the United States Geological Survey (USGS), China’s share of global rare earth ore mining will reach about 70% by 2024.

Although it has decreased from more than 90% when China stopped exporting rare earths to Japan due to the Sino-Japanese confrontation in 2010, the degree of dependence is still high.

In addition, data from industry groups under the Chinese government show that China’s global share exceeds 90% in the smelting and alloy manufacturing process of extracting rare earths from ores and making compounds.

The smelting process will emit a large amount of carbon dioxide, which may cause environmental pollution. The United States and other countries tend to rely on China in smelting and processing.

According to data from the United States Geological Survey, 70% of the rare earths imported by the United States from overseas are dependent on China. On April 4, China decided to strengthen rare earth control as a retaliatory measure against the high tariffs of the Trump administration, and included seven rare earths such as dysprosium and terbium used in EVs, etc. in the export control targets.

Among them, heavy rare earths, which China accounts for the majority of the global production, account for the majority. In addition to rare earths themselves, alloys, oxides, and compounds that are materials for high-performance magnets are also subject to control. A trade official revealed, “Due to the review by the authorities, the application process for new export licenses cannot be advanced for the time being.”

China is also strengthening control. In February, the Ministry of Industry and Information Technology announced the draft “Management Measures for the Total Control of Rare Earth Mining and Smelting and Separation of Rare Earths”. The draft not only restricts mining, but also limits post-processing such as smelting to large state-owned enterprises. The purpose is to strengthen control over rare earths that are imported from the United States and other countries and then smelted and processed.

Rare earths have a wide range of uses. A small amount of addition can improve the performance of materials, so they are called “vitamins for industry.” In addition to magnets used in EVs and wind turbines, rare earths are also used in abrasives for high-performance glass, phosphors, and medical fields. Strengthening control may have an impact on the global supply chain.

According to data from the Chinese research company “Ferroalloy Online”, Japan and the United States account for a total of 53% of China’s rare earth exports, accounting for more than half. If the Netherlands, where the headquarters of large semiconductor manufacturing equipment companies are located, is included, it will account for nearly two-thirds. It is estimated that these countries will become the main targets of this control measure.

A senior executive of a Japanese trading company in the resource field pointed out: “If the circulation of rare earths stagnates due to the confrontation between China and the United States, it will have a major impact on the global supply chain of high-tech products.” There are also concerns about security. It is said that high-performance magnets using rare earths are also used for military purposes such as the main fighter jets and missiles of the US military.

If the impact of the confrontation between China and the United States becomes apparent, efforts around the world to reduce dependence on China in smelting and processing may also accelerate. China’s suspension of exports to Japan in 2010 had an impact on Japanese companies, but it also promoted the production of rare earths in the United States and other places. For China, this is also a “double-edged sword”, and if pressure is applied forcefully, it may also have side effects.