Why did China block exports of rare earth elements? Premium

Why did China block exports of rare earth elements?

Amid the ongoing U.S.–China trade war, Chinese authorities have reportedly imposed export controls on rare earth elements (REEs) and magnets that are needed in a range of manufacturing activities, from semiconductor fabrication units to defence equipment. This has been one of the more recent salvos in the trade war between the two countries, but the export restrictions apply to any Chinese refinery that can export refined rare earths outside the country.

Rare earth elements are a series of seventeen substances that are present in the earth’s crust. Unlike what the name may indicate, rare earths occur plentifully in nature, but the rarity comes from the ability to isolate them chemically and make them usable in industrial applications. Heavy and light rare earths occur naturally in several countries, such as India, China, Myanmar, Japan, Australia and North Korea.

China’s curbs target dysprosium, gadolinium, lutetium, samarium, scandium, terbium, and yttrium, seven of the seventeen elements classified as REEs.

Dysprosium’s so-called magnetic susceptibility makes it ideal for use in hard disks and car motors; gadolinium is used in nuclear reactors for shielding and in some medical equipment; lutetium and compounds with it are used in PET scanners and in petroleum refineries; samarium is used in powerful magnets in personal electronics; scandium–aluminium alloys are used in fighter aircraft; terbium is used in lighting for personal electronics; and yttrium is used in cancer treatments and superconductors.

While rare earths are found in multiple countries, refining them, particularly heavy REEs like the ones described above, has been an area dominated by China. A heavy rare earth facility opened in Vietnam is currently shuttered over a tax dispute. As such, practically all heavy REEs used all over the world are refined in China.

From personal electronics to defence, therefore, Beijing has enormous leverage over the entire world for a range of supply chains for critical raw and intermediate materials. The export restrictions don’t appear to amount to an outright ban, but could interrupt supplies to countries for a few weeks as refiners work through the process of getting permits.

Indian supply chains may not be immediately impacted by REE export restrictions in China. While the government has taken steps to boost domestic production of semiconductors and defence equipment, the more advanced stages of manufacturing typically happen abroad in countries like China itself, and Japan. The latter country has already taken steps to insulate itself from REE supply shocks, by building a months-long stockpile.