Concerns are deepening over the potential damage from China’s restrictions on critical mineral exports, prompting some European automakers to consider measures against shortages of rare earth elements.

In April, China’s decision to suspend exports of a wide array of rare earth elements and associated magnets, reportedly in response to excessive tariffs imposed by US President Trump, disrupted supply chains crucial for automakers, aerospace manufacturers, semiconductor companies, and military contractors globally. This action underscores China’s dominance in the critical mineral industry, which is pivotal for the green energy transition, and is perceived as leverage in its trade dispute with the US. China accounts for approximately 90% of the global production of rare earth elements.

In May, US automaker Ford was compelled to halt production of its Explorer model at its Chicago plant for several days.

European Union Trade Commissioner Maros Sefcovic stated on Wednesday that he and his Chinese counterpart had agreed to clarify the issue of rare earth elements as soon as possible. EU Industry Strategy Commissioner Stephane Sejourne remarked, “We must reduce our dependence on all countries, especially certain nations like China, upon which we are more than 100% reliant.” After Brussels identified 13 new projects aimed at boosting metal and mineral supplies, Sejourne commented, “Export restrictions intensify our desire to diversify.”

Earlier on Wednesday, Mercedes-Benz production chief Joerg Burzer revealed that the automaker is in discussions with its largest suppliers about establishing “buffers,” such as rare earth stockpiles, to safeguard against potential supply threats. Currently, Mercedes is not affected by shortages. BMW reported that while a segment of its supplier network has been affected by shortages, its own manufacturing plants continue to operate normally.

The European automotive suppliers’ association, CLEPA, indicated that several production lines have been shut down due to depleted supplies and issued a warning about the escalating threat these controls pose to production. CLEPA further noted that only a quarter of the hundreds of export license applications submitted by automotive suppliers since early April have been approved, with some applications reportedly rejected by authorities due to “high procedural reasons.” CLEPA, without disclosing the names of the affected companies, warned that further disruptions are possible.

While China’s April announcement coincided with a broader retaliatory package against Washington’s tariffs, these measures are being enforced globally, generating concern among business executives across the world. Last week, German and US automakers voiced complaints, echoing similar concerns from an Indian electric vehicle manufacturer, that China’s imposed restrictions are threatening production. Many are urging their respective governments to find a swift solution and are actively seeking alternative supply sources.

Wolfgang Weber, CEO of Germany’s electrical and digital industry association ZVEI, stated via email that some companies possess supplies sufficient for only a few weeks or months. “Companies currently feel abandoned by policymakers and are, in part, seeking their own solutions to the challenging situation in China,” he remarked.

Swedish company Autoliv, the world’s largest manufacturer of airbags and seatbelts, announced that its operations remain unaffected. However, CEO Mikael Bratt mentioned that he has established a task force to manage the evolving situation.

Reports indicate that unconventional strategies are being explored in the US to secure urgently needed rare earth elements, or at least components derived from them. Consequently, automakers, in particular, are contemplating shifting the production of relevant components to China. Some are even considering sending nearly finished parts, such as electric motors, to China for the installation of indispensable rare earth magnets, with these components subsequently being shipped back to Western countries.

Dependence on China

Automakers such as General Motors and BMW, along with major suppliers like ZF and BorgWarner, are actively researching or developing motors with low or zero rare earth content to lessen their dependence on China. However, few have successfully scaled production to achieve cost reductions. BMW has begun incorporating magnet-free electric motors into its latest generation of electric vehicles. Nevertheless, the company still requires rare earths for smaller motors that power components such as windshield wipers and window regulators. German automaker Volkswagen has stated that it currently perceives no shortages.

China’s tightening of critical mineral export controls, following the initiation of a trade dispute by the US, has become a central theme in Trump’s criticisms of Beijing. Trump has sought to redefine trade relations with the US’s largest economic competitor by imposing substantial tariffs on billions of dollars worth of imported goods, aiming to reduce the trade deficit and recover lost manufacturing jobs. Trump imposed tariffs of up to 145% on Chinese goods, but subsequently retracted them following a significant sell-off in stock, bond, and currency markets, which was attributed to the broad scope of these tariffs. China retaliated with its own tariffs and is leveraging its dominance in crucial supply chains to pressure Trump into retreating.

The US President asserts that China violated a ceasefire agreement, reached in Geneva last month, which stipulated the rollback of tariffs and trade restrictions. Beijing, in turn, accuses Washington of breaching the agreement. The Trump administration further escalated the conflict with actions that Beijing described as “excessive pressure measures.” These included threatening to cancel visas for Chinese students in the US and halting the sale to China of certain key technologies related to jet engine semiconductor design.

Trump and Chinese President Xi Jinping are anticipated to meet this week. It is expected that the two leaders will attempt to resolve their differences, with export restrictions anticipated to be a prominent item on the agenda. In a social media post on Wednesday, Trump underscored the fragility of any potential agreement, stating that Xi was “VERY TOUGH AND VERY HARD TO MAKE A DEAL WITH.”

Another option: Ending the economic war

Alternatively, ending the economic conflict with China could offer a resolution. If North American and European nations were to lift their export restrictions targeting China, they might anticipate an exemption from Chinese countermeasures, which were implemented in response to the West’s economic pressure. However, such a move is not anticipated under current circumstances.

Industry representatives suggest that the EU could also act independently, without consulting the US. For instance, it could lift the ban on the export to China of cutting-edge machinery used in semiconductor production, manufactured by the Dutch company ASML. Such an action would alleviate tensions in the ongoing economic conflict. Nevertheless, there are currently no indications that such a step will be taken within the EU.