China has tightened its control over rare earth exports. As a result, US industries like defense, electric vehicles (EVs), and electronics are growing concerned.

The new rules require Chinese companies to get special export licenses for some rare earth metals and magnets. These materials are essential for motors, missiles, chips, fighter jets, and even smartphones. Since China dominates rare earth mining and processing, it now holds more power over global supply chains.

What China’s New Rules Include

In early April, China introduced restrictions on seven rare earth elements. These include samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. Now, Chinese exporters must get government approval before shipping these materials abroad.

This decision came after the US raised tariffs on Chinese products. In response, China took several countermeasures. Although there is no full ban, shipments have already stopped. Authorities are still working on the licensing system.

According to The New York Times, rare earth shipments are sitting at Chinese ports, waiting for further instructions. Moreover, China has added 16 US defense and aerospace companies to its restricted export list. These firms can no longer easily buy items with both civilian and military uses.

Why Rare Earths Are Important

Rare earth elements fall into two categories: light and heavy. Heavy rare earths, such as dysprosium and terbium, are harder to find and more expensive. However, they are crucial because of their strong magnetic and heat-resistant properties. These traits make them ideal for defense and high-tech tools.

Currently, the US has only one rare earth mine—Mountain Pass in California. It produces about 15% of the global supply. However, the real problem is refining. China processes nearly all of the world’s dysprosium and 90% of rare earth magnets.

As a result, the US depends heavily on China. The Center for Strategic and International Studies (CSIS) said, “The United States is particularly vulnerable for these supply chains.” Furthermore, CSIS added, “There is no heavy rare earths separation happening in the United States at present.”

To address this, the US Department of Defense (DoD) has invested over $439 million since 2020. The goal is to build rare earth processing plants in the US. In its 2024 strategy, the DoD plans to create a full domestic supply chain by 2027.

Even so, CSIS warns that US efforts may fall short. “Developing mining and processing capabilities requires a long-term effort,” the report stated. In other words, the US will still trail behind China for now.

How It Affects US Companies

This situation also puts pressure on American industries. Auto companies like Tesla, Ford, GM, and Rivian use rare earth magnets in EV motors. Sam Fiorani from AutoForecast Solutions explained, “China’s ban on rare earth exports to the US slows access to a number of minerals crucial to modern vehicle production.”

Tesla has already cut its use of rare earths by 25%. It is also developing a motor that won’t need them at all. Meanwhile, GM is exploring options, but it hasn’t shared any clear plans.

Some Chinese suppliers have canceled existing deals with foreign buyers. They’ve cited “force majeure,” which allows them to break contracts due to unexpected events. As a result, US companies may lose access to their regular supplies.

Additionally, American carmakers could see their costs rise. Unlike some European and Japanese firms, they build EV motors locally and rely more on Chinese materials. Fiorani told Yahoo Finance, “These already expensive materials will only increase in cost with China removed as a potential source.”

US Defense Faces Bigger Risks

Beyond commercial losses, the US military could face serious problems. Rare earths are vital for radars, submarines, missiles, and aircraft. CSIS warned that shortages could directly affect military readiness.

Even before the new rules, the US struggled to boost defense production. A 2022 US Air Force official said China produces new weapons five to six times faster than the US.

CSIS added, “Further bans on critical minerals inputs will only widen the gap.” China could keep growing its military power faster than the US.

The Trump administration’s defense plans could also slow down. This includes projects like the sixth-generation F-47 fighter jet. Meanwhile, China is testing its own sixth-gen jets—J-36 and J-50—more often.

In response, the US has explored foreign rare earth sources, including in Greenland and Ukraine. However, experts question how practical or valuable those resources are.

How the World Might React

Other countries also want to reduce their reliance on China. Australia and Brazil are investing in rare earth mining and refining. CSIS advises the US to support these global efforts with money and diplomacy.

Still, not every nation may challenge China. Some could decide to cooperate more with Beijing to protect their own rare earth supply.

Daniel Pickard, a trade lawyer, explained to Yahoo Finance, “It is important to be aware that there is a big difference between China requiring export licenses as compared to a ban on exports… In many cases there weren’t any actual signs of declining import volumes.”