China Halts Heavy Rare Earth Exports, Halting Global Auto Production

China's recent decision to halt exports of heavy rare earth elements on April 4 sent shockwaves through the global auto industry. The abrupt move led to an immediate halt in production, with assembly lines freezing and factories shutting down within days. The impact was swift and severe, affecting automakers worldwide, including Ford, which was forced to idle its Explorer SUV production line. The crisis underscored the critical dependence of the auto industry on these minerals, which are essential for components ranging from electric switches to battery systems.

This crisis is centered around a group of 17 minerals known as rare earth elements. These elements are integral to a wide range of technologies, from military aircraft and smartphones to satellites and sports equipment. In the automotive sector, they are found in pollution filters for gas vehicles and in the electric motors and battery systems of electric vehicles (EVs). Gracelin Baskaran, who runs the Critical Minerals Security Program, emphasized the indispensability of rare earths in car manufacturing, stating that "Rare earths are really critical, and not just for electric vehicles. They are in your seat belt, your steering wheels, various parts of your electrical components. You are not going to manufacture a car without rare earths."

Rare earth elements are categorized into light, medium, and heavy types. While light rare earths are more abundant and easier to extract, heavy rare earths are more scarce and valuable. China controls approximately 70% of the world's rare earth mines, but its dominance is even more pronounced in processing. China possesses about 90% of the global processing capacity for these minerals, with a total monopoly on heavy rare earth processing. This control over processing infrastructure is a significant factor in China's ability to influence the global supply of rare earths.

China's tightening of mineral controls has been ongoing since at least 2023, but the April move caught the industry off guard. The fragile supply chain was unable to withstand the sudden disruption, leading to widespread production halts. In response, some companies are exploring recycling options and investing in new mineral exploration. There is also a push to develop technologies that do not rely on rare earths, although this innovation is years away from implementation. For now, China's control over the supply of these critical minerals means that it effectively decides which companies can keep their factories running.

The impact of China's actions extends beyond the auto industry and rare earths. Dan Hearsch, managing director at AlixPartners, warned that "Today it’s rare earths. But tomorrow it can and will be something else that maybe we’re not thinking about, that maybe isn’t even all that valuable and suddenly will be." This highlights the potential for future disruptions in other critical mineral supplies, where China could again exert significant influence. The volatility in the U.S.-China relationship, marked by tariffs and mineral restrictions, adds to the uncertainty, making it difficult to predict the long-term stability of global supply chains.