China Halts Critical Exports as Trade
War Intensifies
Beijing has suspended exports of certain
rare earth minerals and magnets that are crucial for the world’s car, semiconductor
and aerospace industries.
·
China
has suspended exports of a wide range of critical minerals and magnets, threatening
to choke off supplies of components central to automakers, aerospace
manufacturers, semiconductor companies and military contractors around the
world.
·
Shipments
of the magnets, essential for assembling everything from cars and drones to
robots and missiles, have been halted at many Chinese ports.
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The
so-called heavy rare earth metals covered by the export suspension are used in
magnets essential for many kinds of electric motors. These motors are crucial
components of electric cars, drones, robots, missiles and spacecraft.
Gasoline-powered cars also use electric motors with rare earth magnets for
critical tasks like steering.
China
has suspended exports of a wide range of critical minerals and magnets, threatening
to choke off supplies of components central to automakers, aerospace manufacturers,
semiconductor companies and military contractors around the world.
Shipments
of the magnets, essential for assembling everything from cars and drones to robots
and missiles, have been halted at many Chinese ports while the Chinese government
drafts a new regulatory system. Once in place, the new system could permanently
prevent supplies from reaching certain companies, including American military contractors.
The
official crackdown is part of China’s retaliation for President Trump’s sharp increase
in tariffs that started on April 2.
On
April 4, the Chinese government ordered restrictions on the export of six heavy
rare earth metals, which are refined entirely in China, as well as rare earth magnets,
90 percent of which are produced in China. The metals, and special magnets made
with them, can now be shipped out of China only with special export licenses.
But
China has barely started setting up a system for issuing the licenses. That has
caused consternation among industry executives that the process could drag on and
that current supplies of minerals and products outside of China could run low.
If
factories in Detroit and elsewhere run out of powerful rare earth magnets, that
could prevent them from assembling cars and other products with electric motors
that require these magnets. Companies vary widely in the size of their emergency
stockpiles for such contingencies, so the timing of production disruptions is hard
to predict.
The
so-called heavy rare earth metals covered by the export suspension are used in magnets
essential for many kinds of electric motors. These motors are crucial components
of electric cars, drones, robots, missiles and spacecraft. Gasoline-powered cars
also use electric motors with rare earth magnets for critical tasks like steering.
The
metals also go into the chemicals for manufacturing jet engines, lasers, car headlights
and certain spark plugs. And these rare metals are vital ingredients in capacitors,
which are electrical components of the computer chips that power artificial intelligence
servers and smartphones.
Michael
Silver, the chairman and chief executive of American Elements, a chemicals supplier
based in Los Angeles, said his company had been told it would take 45 days before
export licenses could be issued and exports of rare earth metals and magnets would
resume. Mr. Silver said that his company had increased its inventory last winter
in anticipation of a trade war between the United States and China, and could meet
its existing contracts while waiting for the licenses.
Daniel
Pickard, the chairman of the critical minerals advisory committee for the Office
of the United States Trade Representative and Department of Commerce, expressed
concern about the availability of rare earths.
“Does
the export control or ban potentially have severe effects in the U.S.? Yes,” he
said. Mr. Pickard, leader of the international trade and national security practice
at the Buchanan Ingersoll & Rooney law firm, said a swift resolution of the
rare earths issue was necessary because a sustained disruption of exports could
hurt China’s reputation as a reliable supplier.
In
a potential complication, China’s Ministry of Commerce, which issued the new export
restrictions jointly with the General Administration of Customs, has barred Chinese
companies from having any dealings with an ever-lengthening list of American companies,
particularly military contractors.
One
American mining leader, James Litinsky, the executive
chairman and chief executive of MP Materials, said that rare earth supplies for
military contractors were of particular concern.
“Drones
and robotics are widely considered the future of warfare, and based on everything
we are seeing, the critical inputs for our future supply chain are shut down,” he
said. MP Materials owns the sole rare earths mine in the United States, the Mountain
Pass mine in the California desert near the Nevada border, and hopes to start commercial
production of magnets in Texas at the end of the year for General Motors and other
manufacturers.
A
few Japanese companies keep rare earth inventories of more than a year’s supply,
having been hurt in 2010, when China imposed a seven-week embargo on rare earth
exports to Japan during a territorial dispute.
But
many American companies keep little or no inventory because they do not want to
tie up cash in stockpiles of costly materials. One of the metals subject to the
new controls, dysprosium oxide, trades for $204 per kilogram in Shanghai, and much
more outside China.
Rare
earth magnets make up a tiny share of China’s overall exports to the United States
and elsewhere. So halting shipments causes minimal economic pain in China while
holding the potential for big effects in the United States and elsewhere.
Chinese
customs officials are blocking exports of heavy rare earth metals and magnets not
just to the United States but to any country, including Japan and Germany. Enforcement
of the new export license requirement, though, has been uneven so far among different
Chinese ports, rare earth industry executives said.
Most
but not all rare earth magnets include heavy rare earths, which are needed to prevent
magnets from losing their magnetism at high temperatures or in some electrical fields.
Some rare earth magnets are made only from light rare earths, and are not subject
to export restrictions. Customs officials at a few Chinese ports are tolerating
exports of magnets if they have only tiny traces of heavy rare earth metals in them,
and if the magnets are not going to the United States.
Officials
at other Chinese ports are taking a more stringent stance, however, demanding that
exporters run tests to prove that any batch of magnets does not have heavy rare
earth metals in them before the magnets can be loaded on a ship for export.
The
Chinese export restrictions began taking effect before the Trump administration
announced on Friday night that it would exempt many kinds of consumer electronics
from China from its latest tariffs. Magnet exports continue to be blocked this weekend,
five rare earth industry executives said.
Like
most goods from China, the magnets are also subject to President Trump’s latest
tariffs when they arrive at American ports.
Until
2023, China produced 99 percent of the world’s supply of heavy rare earth metals,
with a trickle of production coming out of a refinery in Vietnam. But that refinery
has been closed for the past year because of a tax dispute, leaving China with a
monopoly.
China
also produces 90 percent of the world’s nearly 200,000 tons a year of rare earth
magnets, which are far more powerful than conventional iron magnets. Japan produces
most of the rest and Germany produces a tiny quantity as well, but they depend on
China for the raw materials.
China’s
Ministry of Commerce did not reply to a request for comment.
The
world’s richest deposits of heavy rare earths lie in a small, forested valley on
the outskirts of Longnan in the red clay hills of Jiangxi
Province in south-central China. And most of China’s refineries and magnet factories
are in or near Longnan and Ganzhou, a town about 80 miles
away. Mines in the valley ship ore to refineries in Longnan,
which remove contaminants and send the rare earths to magnet factories in Ganzhou.
China’s
most famous factory for these magnets is operated by the JL Mag Rare-Earth Company,
whose headquarters are in Ganzhou.
The
factory supplies the world’s top two electric car producers, Tesla and China’s BYD,
with the magnets that power their cars, rare earth industry executives said. BYD
has said that it buys some of the world’s latest, most powerful magnets from JL
Mag, with 15 times the magnetic force per cubic inch of volume as a conventional
iron magnet.
Xi
Jinping, China’s top leader, made a special inspection visit to JL Mag’s factory
in Ganzhou in 2019, during heightened trade tensions in Mr. Trump’s first term.
The trip was interpreted as a hint that China was ready to use its control over
the materials to disrupt American supply chains, a step it did not take then but
is doing now.
China
paused the mining of heavy rare earths near Longnan a
few years ago because it was causing severe chemical pollution.
On
Friday, at the site of one mine near Longnan, a diesel
generator was humming and liquids were gurgling through plastic pipes, indicating
that at least some mining operations had probably resumed. Heavy rare earths are
mined by dumping strong chemicals into holes dug in the top of a hillside. The chemicals
dissolve the ore and dribble out of the base of the hill, where they can be pumped
to nearby pits for initial processing.