With a tariff truce between the United States and China, there are growing concerns that U.S. auto plants may halt production due to a rare earth supply shortage. The United States has responded by accusing China of violating the truce agreement, while China has retaliated by claiming the U.S. has blocked semiconductor exports and canceled visas for Chinese students.
On the 3rd (local time), Reuters reported that the American Automotive Innovation Alliance (AAI) warned in a confidential letter sent to U.S. government officials on the 9th of last month. AAI said, "If supply on rare earths is cut off, auto parts suppliers will be unable to produce key components such as automatic transmission, throttle body, alternator, various motors, sensors, safety belts, speakers, lighting, power steering, and cameras," adding, "In serious cases, reductions in production or even halting vehicle assembly lines may be necessary."
Earlier, the Chinese government required special export permits for rare earths in early April. To export seven types of rare earths, including dysprosium used in magnets for electric vehicles, samarium used in cobalt magnets, gadolinium used as a contrast agent, terbium used as a phosphor raw material, lutetium used in radiation therapy, scandium used in aircraft parts, and yttrium used for solid laser manufacturing, permission from the Chinese government is required.
China mines 70% of the world’s rare earth reserves and processes 90% of the mined rare earths. Rare earths are one of the key raw materials used in various high-tech industries, including automobiles, making rare earth exports a trump card for China.
The New York Times (NYT) reported, "China's dominance over rare earth resources is greatest among the seven types, such as dysprosium, gadolinium, lutetium, samarium, scandium, terbium, and yttrium, which are subject to export controls in April. These are primarily produced in China and Myanmar, and the chemical separation is among the most challenging." It is reported that China produces 99.9% of the world's dysprosium and terbium.
On the 12th of last month, China agreed to either withdraw or suspend for 90 days the tariffs it had imposed competitively with the United States; however, it has yet to lift its export controls on rare earths. As a result, U.S. President Donald Trump expressed opposition on the 30th of last month, claiming that China violated this agreement.
Conversely, China is raising concerns about the U.S. blocking exports of Chinese semiconductor chips and canceling visas for Chinese students. Wang Yi, Director of the Central Foreign Affairs Committee of the Communist Party of China (also a Politburo member) and Foreign Minister, met with the new U.S. Ambassador to China, David Perdue, and stated, "The United States must come closer to China and meet the necessary conditions to restore Sino-U.S. relations to normal track." He added, "Unfortunately, the U.S. has recently taken a series of negative actions on baseless grounds that have undermined China's legitimate rights and interests. We firmly oppose such actions."