Global auto industry on edge as China tightens rare earth mineral exports

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Diplomats and executives from India, Japan and the EU have sought meetings with their Chinese counterparts to reach a solution after China imposed restrictions on the export of rare earth alloys, mixtures and magnets read more
Chinese President Xi Jinping makes a toast at the beginning of the welcoming banquet at the Great Hall of the People during the first day of the Belt and Road Forum in Beijing, China on May 14, 2017. (Source: Reuters)
Global capitals and automakers are fretting over restrictions placed by China on exports of critical minerals, leading to plant shutdowns and production delays.
On Tuesday (June 3), global automakers sounded the alarm over Beijing's restrictions on rare earth alloys, mixtures and magnets, leaving them to fend for themselves and scrambling for alternative sources, with no immediate relief in sight.
China announced these restrictions in April amid an escalating trade conflict with the US, disrupting critical supply chains central to automakers, aerospace manufacturers, semiconductor companies and military contractors.
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Concerns raised by automakers
In India, Bajaj Auto recently warned that any further delay in securing rare earth magnet supply from China would cause production delays. It added that it was organising a trip for its executives to China to escalate the matter further.
On Wednesday, German carmaker BMW said that part of its supplier network was affected by the shortage in rare earths. Europe's auto supplier association CLEPA also said several production lines have been shut down due to rare earths shortages.
In May, a group representing General Motors, Hyundai, Toyota and Volkswagen, among others, wrote a letter to the Donald Trump administration of the US expressing similar concerns.
'Without reliable access to these elements and magnets, automotive suppliers will be unable to produce critical automotive components, including automatic transmissions, throttle bodies, alternators, various motors, sensors, seat belts, speakers, lights, motors, power steering, and cameras,' the Alliance for Automotive Innovation wrote in the letter.
Hildegard Mueller, head of Germany's auto lobby, was quoted by Reuters as saying that the problem needs to be solved urgently.
'If the situation is not changed quickly, production delays and even production outages can no longer be ruled out,' he warned.
Nations seeking urgent diplomatic talks
China's 'rare earth' move has left nations in shock, with many seeing no other option than to reach out to Beijing directly and secure concessions.
According to Reuters, diplomats and executives from India, Japan, and the EU have sought meetings with their Chinese counterparts to reach a solution.
'No one should be surprised'
Meanwhile, experts are saying no one should be surprised by Beijing's assertive approach with rare earth supplies.
Frank Fannon, a minerals industry consultant and former US assistant secretary of state for energy resources during Trump's first term, said, 'I don't think anyone should be surprised how this is playing out. We have a production challenge (in the US) and we need to leverage our whole of government approach to secure resources and ramp up domestic capability as soon as possible. The time horizon to do this was yesterday.'
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China's dominance
The crisis highlights China's undisputed dominance in the rare earth sector, which produces 90 per cent of the global output.
China's slow pace in easing its export controls on critical minerals has drawn criticism from Trump. He claims China has breached the agreement made last month to reduce tariffs and trade restrictions.
Trump has aimed to reshape the trade relationship with China by imposing high tariffs on billions of dollars worth of imports, hoping to reduce the trade deficit and revive manufacturing jobs.
However, after imposing tariffs as high as 145 per cent, he had to reduce them due to market reactions.
In response, China has introduced its own tariffs and is using its control over key supply chains to pressure Trump. This week, Trump and Chinese President Xi Jinping are expected to discuss these issues, with the export controls likely being a major topic.