China considers rare earth export relief for select chipmakers

Chinese state media said that on Wednesday, China may relax restrictions on exports of rare earths for Chinese and European semiconductor firms and other companies in their supply chain. China had put rare earth on an export control list, which forced exporters to apply for licenses.

After restricting the export of minerals, the country required all companies to get special export licenses to send rare earths and magnets out of the country. The requirement stems from a signatory to the international treaty on the Non-Proliferation of Nuclear Weapons, which allows China to control the trade of dual-use products.

China eases restrictions on Chinese and European semiconductor firms

China has already issued a few licenses to exports of rare earth magnets, used in the semiconductor, auto, and defense industries. The complex licensing process can take months and is already creating confusion and tensions at customs.

The Chinese government said it could relax the controls on the supply chains of Chinese and European semiconductor companies. The report also noted that the rare earth controls were discussed at a meeting between Chinese and European semiconductor firms hosted by China’s commerce ministry on Tuesday.

The meeting provided European Chamber members the opportunity to express in person the urgent need to accelerate approval processes to ensure the stability of their supply chains.”

-Jens Esklund, President of the European Union Chamber of Commerce in China.

The International Energy Agency estimates that China controls around 70% of rare earth extraction and 90% of rare earth processing globally, which makes export restrictions evident to how Beijing can weaponize that control to all countries. The U.S. is the second largest producer with the seventh largest reserves, but it falls short of China’s output and relies on the country for imports. 

China retaliates against U.S. trade policies

U.S. President Donald Trump has repeatedly called for President Xi Jinping to reach out to secure a deal to de-escalate their trade war, but China has pledged to fight to the end. In response to Trump’s trade policies, China imposed restrictions on the exports of seven rare earth minerals, along with other products, including permanent magnets. 

In the wake of China’s limitations on rare earth minerals, shipments of the seven minerals stopped on April 4, according to sources familiar with the matter. The rare earth elements include samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium-related items.

Mel Sanderson, a director at American Rare Earths, said China made the list strategically. He also believes that Beijing pitched the seven rare earth elements that are crucial for the U.S. economy.

The people familiar with the matter said if the freeze lasted longer than two months, the typical stockpiles built up by customers could be depleted. They also argued that it could be very difficult for U.S. clients to get export licenses, given the escalating trade war between the two nations.

The rare earth elements are crucial for a range of defense technologies, including F-35 fighter jets, Virginia and Columbia-class submarines, and the Joint Direct Attack Munition series of smart bombs.

The Department of Defense set a goal in its 2024 National Defense Industrial Strategy to develop a complete mine-to-target rare earth element supply chain that can meet all U.S. defense needs by 2027. The government has committed over $439 million since 2020 to build domestic supply chains.

Thomas Krummer, director of Ginger International Trade and Investment, said that everything that can switch on or off likely runs on rare earths. Ryan Castilloux, founder of consultancy Adamas Intelligence, argued that China’s move will create a scramble for access to the limited sources of alternative supply in Japan and South Korea.

The Las Vegas-based MP said last month that Beijing’s move reinforced the notion that America must secure an end-to-end rare earth supply chain to protect its industrial and national security. Phoenix CEO Nick Myers acknowledged that China’s moves further encouraged the firm to double down on its expansion plans. Jacob Gunter, an analyst at Mercator Institute for China Studies expects China’s ban to galvanize efforts in the West to build alternative supply chains.

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