5 Major Industries at Risk from China’s Rare Earth Supply Restrictions

China’s Export Limits on Rare Earths Disrupt Global Supply Chains

China’s restrictions on rare earth exports are causing significant disruptions in global supply chains, particularly affecting India’s automotive, electronics, and defense industries. As India increasingly relies on Chinese rare earths amid escalating trade challenges, local industries are seeking clearer guidance on the situation.

China’s Role in Rare Earth Mineral Processing

With nearly 90% of the world’s rare earth mineral processing undertaken in China, the country plays a pivotal role in the global supply chain. This has forced several nations, including major Asian economies like Japan and India, to explore solutions to navigate the resulting complications.

Key Sectors Affected in India

If the supply curbs persist, several critical sectors in India are poised to experience significant impacts. Below is an overview of these areas, starting with the automotive industry which is facing immediate repercussions.

Immediate Impact on the Automotive Sector

The automotive industry is one of the most adversely affected sectors, with both global and Indian manufacturers reporting significant disruptions. Rare earth magnets, which are crucial components in electric motors, power windows, audio systems, and various automotive parts, are becoming increasingly scarce. According to a report from Reuters, Bajaj Auto has indicated that delays in acquiring magnets from China could “seriously impact” the production of electric vehicles as early as July. Bosch has reported that its suppliers are encountering difficulties in obtaining export permit approvals from China, while BMW has acknowledged that its supplier network has felt the impact, although their operational status remains unaffected. Furthermore, per ET Now, Indian companies are resorting to importing complete motor assemblies from China to circumvent bureaucratic delays, resulting in higher costs and potential setbacks for India’s electric vehicle objectives.

Electronics and Semiconductor Industries Prepare for Challenges

Rare earth elements, such as neodymium and dysprosium, are essential in manufacturing smartphones, laptops, and high-performance semiconductor chips. As supplies dwindle, industry experts anticipate rising costs and possible production delays within the global electronics and semiconductor sectors.

Telecommunications and Other Fields at Risk

Industries such as telecommunications, battery technologies, industrial machinery, and precision instruments, including robotics, are also likely to be impacted, as export restrictions disrupt supply chains related to these technologies.

India’s Stance on Rare Earth Magnet Production

As reported by CNBC-TV18, no Indian entity has received import clearance for rare earth magnets from China since April 4, following the enactment of a new Chinese regulation that mandates governmental approval for all rare earth magnet exports. This policy has left Indian manufacturers uncertain, even affecting low-end magnets due to bureaucratic ambiguities.

Potential Disruptions in the Renewable Energy Sector

Clean energy technologies, like wind turbines, heavily depend on rare earth components. Any extended disruptions could jeopardize the attainment of global renewable energy objectives. According to the International Energy Agency and the U.S. Geological Survey, China produces 60% of the world’s rare earth metals and dominates 90% of global refining capacity, thus maintaining significant leverage.

Focus on Defense and Aerospace Industries

The aerospace sector also relies heavily on rare earth elements for advanced materials utilized in aircraft, missile guidance systems, and various defense technologies. China’s control over these materials offers it strategic advantages, especially for national security applications. Analysts suggest that China’s decision to enforce new export regulations on rare earth magnets is a reaction to intensifying global trade tensions, including tariffs initiated during the Trump administration. Although India may not be the primary target of these measures, it stands as one of the most severely affected countries due to its substantial dependence on Chinese supplies.

Efforts to Engage with China

According to a report by CNBC-TV18, senior officials in India are contemplating sending a delegation to Beijing to meet with representatives from China’s Ministry of Commerce. The objective is to gain clarity on the new permit system and to resolve the current disruptions surrounding rare earth imports.