A fresh front has opened in the U.S.–China trade conflict as Beijing’s decision to expand export restrictions on rare earth minerals sends shockwaves through the global automotive and clean energy industries.
The Chinese Ministry of Commerce last week announced new curbs on the export of rare earth elements and processing technologies, citing national security and the need to prevent “misuse” in defense and other sensitive sectors. The move quickly drew sharp responses from global manufacturers who rely on these materials to power electric vehicles, smartphones, wind turbines, and advanced defense systems.
The announcement came just days after U.S. President Donald Trump threatened to impose 100% tariffs on Chinese imports, escalating tensions between the world’s two largest economies. Beijing, in turn, defended its actions and said it was “not afraid” of a trade war.
Auto Industry in Crisis Mode
Europe’s automotive sector — already battling high costs, supply chain fragmentation, and slowing demand — is now grappling with the real possibility of rare earth shortages.
The German Association of the Automotive Industry (VDA) warned that the new export restrictions would have “far-reaching consequences” for deliveries of critical materials to Europe. The group urged both Berlin and Brussels to respond swiftly and “forcefully” to secure continued supply from China.
“The export restrictions implemented in April already severely tightened access to strategic materials. The latest measures go even further, threatening the stability of our production ecosystem,” a VDA spokesperson told CNBC.
Italy’s ANFIA, representing auto parts manufacturers, echoed similar concerns. Chairman Roberto Vavassori said manufacturers were running out of buffer stocks. “This cushion is gone. If restrictions persist, some production lines could halt,” he warned.
China’s Dominance and Strategic Leverage
China’s rare earth dominance has long been seen as one of its most powerful tools in the global trade arsenal. The country controls roughly 60% of mining and 90% of refining capacity for these critical minerals — an overwhelming advantage in industries central to the clean energy transition.
“China dominates 90% of global refinery capacity and therefore it’s a real bottleneck,” said Rico Luman, senior economist at ING. “Some elements could run short very quickly, depending on how long the restrictions last.”
While inventories in Europe, such as those held by Tradium’s storage facilities near Frankfurt, may cushion short-term effects, analysts warn that long-term disruptions are likely unless trade channels are reopened.
Strategic and Economic Fallout
The timing of the restrictions coincides with the West’s urgent push to secure critical mineral supply chains and reduce dependence on China. Both the European Union and the United States have launched initiatives to develop domestic mining and refining projects, but progress remains slow.
For automakers and clean energy producers, the stakes could not be higher. Rare earths are indispensable in EV motors, wind turbines, and military radar systems, making them both an economic and security priority.
Analysts say China’s tightening grip could be part of a broader geopolitical strategy — signaling that it will not hesitate to weaponize its dominance over global supply chains in response to Western trade measures.
As the U.S. and China continue their standoff, global markets remain on edge. A prolonged disruption could trigger production slowdowns, higher input costs, and delayed timelines for EV rollouts, potentially undermining global decarbonization targets.
