China's decision to halt rare earth exports in response to the reciprocal tariffs imposed by the Donald Trump administration has led the domestic automobile industry, including Hyundai Motor Company and Kia, to face another challenge. Rare earths are essential materials used in the production of electric motors for electric and hybrid vehicles, with most imports dependent on China.

According to The New York Times (NYT) on the 13th (local time), the Chinese government decided on the 4th to limit exports of six types of rare earths, including gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium, as well as rare earth magnets produced in China.

Dysprosium and other rare earth elements are essential core materials used to make electric vehicle drive motors. The photo shows an eco-friendly car model applied with a POSCO INTERNATIONAL drive motor. /Courtesy of POSCO INTERNATIONAL

China has required special export permits from the government to ship these items abroad, but has not yet announced specific guidelines. Essentially, an indefinite export ban has been imposed until a detailed export permit system is established.

The Chinese government's decision to restrict rare earth exports is interpreted as a retaliatory measure against the reciprocal tariffs of the Trump administration. The United States raised the tariff rate against China from 81% to 125%, and then increased it to 145% on the 10th, citing deficiencies in managing raw materials for the narcotic fentanyl. Consequently, China decided to cut off supplies of rare earths to strike at U.S. industry and manufacturing.

China produces about 90% of the world's processed rare earths. According to the U.S. Geological Survey (USGS), three-quarters of the rare earths imported by the United States from 2019 to 2022 were sourced from China. Major American corporations such as Tesla and Apple are importing rare earths from China to produce their products.

The rare earths affected by the export ban are essential materials for electric vehicles, hybrid vehicles, and batteries, and domestic companies are expected to be hit hard.

Dysprosium and terbium are used in the electric motors that are installed in electric and hybrid vehicles. Electric motors generate electricity using magnets made from another rare earth, neodymium, and when they rotate quickly, high heat causes a decrease in magnetic performance. In such cases, dysprosium and terbium are added to neodymium to maintain magnetism and increase efficiency even at high temperatures.

In the past, whenever China limited rare earth exports for political reasons, global automobile corporations, including Hyundai Motor Company and Kia, faced difficulties. As a result, automobile manufacturers have been working to reduce their dependence on China by developing magnets or electric motors with reduced rare earth content or investing in the development of overseas rare earth mines.

Hyundai Motor and Kia establish a joint research lab for magnetic materials at Yonsei University in the Seodaemun District of Seoul to enhance the competitive edge of permanent magnet technology, which is a core component of electric vehicles. /Courtesy of Hyundai Motor

Hyundai Motor Group also established a 'joint research lab for magnetic materials' in collaboration with Yonsei University last year. The purpose of this research facility was to develop non-rare earth magnets and technologies for recycling remaining rare earths during the motor operation process. However, if the supply of rare earths from China is cut off amidst the challenge of securing new technologies in a short period, it will inevitably suffer difficulties in producing electric and hybrid vehicles.

In the industry, there are calls for the government to quickly activate communication channels with the Chinese government to minimize the impact on corporations. In 2023, China also controlled graphite exports, but at that time, domestic battery manufacturers did not face significant difficulties as they received special export permits.