Rare Earths, Real Problems – China’s Grip on Critical Minerals
China dominates the global supply of several critical minerals. And for some years, the country's been restricting exports—slowly at first, then quickly. In April 2024, the problem came to a head. China all but completely cut off access to several crucial materials in its trade dispute with the United States. At the center of it is a class of minerals called rare earth elements. They're used in a wide array of products, anything from airplanes to electronics, even sports equipment.
"It is hitting our defense industry, our semiconductor industry, our automotive industry, our medical industry. There's really no major industry that is being spared the impact of it."
Within 3 weeks of China cutting off access, prices of rare earths shot up 40%. The auto industry was hit especially hard. It's just the latest in a series of supply shortages. Several vehicle plants in Europe shut down. Ford stopped making the Explorer at its Chicago factory in May. Car companies panicked.
"You are not going to manufacture a car without rare earths. They're all over the car."
On June 13th, Beijing signaled a willingness to ease its restrictions. That'll buy some time, but insiders say it's a patch.
"We're not out of the woods yet. There is a lot of volatility in the US-China relationship. Between tariffs and mineral restrictions, we've seen China ramp up restrictions over two years. Rare earths are just the newest one."
The frequency and severity of these crises is rapidly increasing. So, how can the car industry—or any industry—adjust to this new reality? CNBC dove in to find out.
The Science and Strategy Behind Rare Earths
First, let's talk about what rare earths even are. They're a class of 17 elements found throughout the Earth's crust, located in many places around the world. They're called rare not because they are rare, but because the process to separate them from other minerals is very complicated and requires highly specialized equipment. This is what China dominates.
Rare earth elements are used in so many things—among them, wind turbines, wireless technology, microwaves, smartphones, submarines, military aircraft, and yes, cars. They're especially useful for making high strength, durable magnets, which are essential to motors.
"What they do is they make the magnets that are in those motors more resistant to heat and vibration. Heat and vibration kind of demagnetize things over time. And there's not many things on Earth better than a car at creating heat and vibration, right?"
The amount of rare earth elements needed in a vehicle only totals about $50 to $200, which isn’t much compared with the cost of other materials. About 4 lb of rare earths seems like nothing compared to the 920 lb found in an F-35 fighter jet. But the issue is clear: without rare earths, you have no car. Even in gas cars, you need them for filtering pollution, sensors, small electric motors, and speakers. Hybrids and EVs require even more.
Up until about the mid-1990s, the US led the world in rare earth production. However, the Clinton administration closed the Bureau of Mines in 1996.
"We began ceding a lot of advantages in everything from uranium to rare earths to other countries."
First among those countries: China. While it controls most of the world’s rare earth mines, where it truly dominates is processing—separating the elements from each other. It has a monopoly on processing heavy rare earths, which are the ones the country cut access to.
In 2010, China cut off Japan's rare earths supply following a maritime conflict—the first modern weaponization of rare earths.
Since 2023, China has increasingly restricted exports of critical minerals, including a ban on refining equipment, technology, and IP. Many countries, including the US, lacked the technical know-how to do this on their own.
A Race to Adapt – What Comes Next?
The shock of full export restrictions announced on April 4th left automakers scrambling. Some feared factories could be idle within a month.
"Nobody had any time to react to it. Within a matter of weeks, all of the material in the pipeline was out."
In June, the Chinese government granted licenses to some suppliers serving Detroit automakers. President Trump said the shortage was over, but it's likely temporary.
"The export licenses expire in 6 months."
The restrictions also created a supply bottleneck. Thousands of applications for licenses are still waiting. Dan Hirs says:
"The auto industry is facing a pattern. The last several decades have been punctuated by periods of intense disruption. These are getting more frequent and more intense."
From the 2010 Japan tsunami, to the COVID-19 pandemic, to the chip shortage, to the war in Ukraine, and now rare earths—each crisis reveals the same fragility.
The US is the second-biggest producer of rare earths, but lacks processing capacity. After the February 2025 tariffs, companies began stockpiling heavy rare earths. The government has provided over $400 million to companies like MP Materials and Lynas to build separation capabilities and a magnet plant in Texas.
But challenges remain:
Average mine setup time globally: 18 years
In the US: 29 years
NDPR oxide price: below $60/kg, meaning only 8 non-Chinese projects would break even by 2030
By flooding the market with cheap, state-backed production, China can undercut competitors and drive them out.
Other countries like Australia, Vietnam, and Saudi Arabia are stepping up. Australia is building separation capabilities, and Saudi Arabia has large heavy rare earth deposits.
Innovation offers hope. One path is recycling, though complex and not always economical. The Department of Defense invested $4.2 million in Rare Earth Salts to extract oxides from recycled products.
Another path: relying less on rare earths.
Tesla has reduced usage by 25%.
Toyota makes lower-content magnets.
ZF has magnet-free motors.
Niron Magnetics, based in Minnesota, makes magnets without any rare earths, using iron and nitrogen.
"Our magnets are made out of iron and nitrogen, which means you can stand up a plant anywhere in the world."
Niron is building a plant in Minnesota (2026–2027), with a second large-scale facility planned for 2029. That 10,000-ton factory could supply magnets for millions of EVs.
"In the next 5 years, it’s going to be one of those situations where we'll have allied supply. We're going to leverage innovation to need less rare earths. And that’s one of America’s great strong points."
Source: CNBC. (2025, June 29). How China proved it can shut down global auto production [Video]. YouTube. https://www.youtube.com/watch?v=oH_2SWQwlkY