Background and Effects
China’s Dominance: China currently controls most of the global production and processing of rare earths, allowing it to exert significant influence over international supply chains. These materials are crucial for the manufacture of high-performance permanent magnets used in electric vehicles, wind turbines, and military applications.
Export Restrictions: In April 2025, China began requiring export licenses for rare earths, effectively bringing shipments to a standstill. Although exports have been permitted again, they are strictly regulated. Buyers are prohibited from selling the materials to the USA, either as raw materials or in processed products. Since April, China has approved only about 25 percent of export requests.
Impact on Industry:
- Automotive Industry: The European and US automotive industries are particularly affected, as rare earths are essential for the production of electric and other modern vehicles. Mercedes-Benz and other manufacturers face potential production shortfalls.
- Defense and Energy Sector: These sectors are also impacted by the restrictions, as rare earths are essential for military and energy applications.
Reactions and Alternatives
NioCorp’s Elk Creek Project: In the USA, NioCorp’s Elk Creek Project is seen as a potential solution to the dependence on Chinese rare earths. The project is fully approved and could become the first US source of heavy rare earths in three years. However, the start of construction is dependent on funding.
Strategic Challenges: Dependence on critical metals like rare earths poses a significant strategic challenge, both commercially and politically. Developing alternative supply chains and promoting domestic production are crucial to reducing this dependence.
Overall, China’s export restrictions on rare earths highlight the need to develop alternative supply chains and reduce dependence on critical raw materials. The European and US industries must adapt to these new challenges to remain competitive in the long term.