China’s expanded export controls on rare earths, announced on 9 October – followed days later by President Trump’s threat of 100% tariffs on Chinese imports – mark a new phase in economic confrontation between the world’s two largest economies. Although rhetoric softened within days, the imperative for business leaders is clear: prepare for heightened volatility, enhance supply chain security, and increase strategic investment in technology and material resilience.
Rare earths are a group of 17 metals underpinning technologies from electric vehicles and electronic devices to wind turbines and defence systems. Companies have long treated rare earths as low-cost, low-risk components – until now. The new restrictions require international firms to obtain licences for exporting any products containing Chinese rare earths, even when manufactured outside China. This extraterritorial reach mirrors the US “foreign direct product rule” for semiconductors, effectively transforming these once-overlooked materials into potential strategic chokepoints.
Key industries under pressure
The impact is most acute in industries where Chinese dominance intersects with high rare earth dependency and limited substitution options:
- Electric vehicles (EV) sit at the frontline of exposure. Each EV motor relies on several kilogrammes of rare earth magnets for high-efficiency performance. Non-Chinese manufacturers like Tesla and Ford face a competitive disadvantage, as Chinese rivals BYD and CATL enjoy preferential access to these critical materials. In 2024, global EV sales reached 11.2 million units, with China accounting for nearly 60% of global sales. Controls on rare earth exports can therefore disadvantage foreign competitors and boost China’s global EV market share.
- Consumer electronics are equally exposed. Smartphones and laptops depend on rare earth magnets for speakers and haptic feedback, phosphors for display brightness, and specialised elements for camera sensors and wireless charging. In 2024, China accounted for 50% of global production of Electronic Components, Valves and Tubes (ISIC 321), meaning companies like Apple and Samsung depend on China for both the raw materials (rare earths) and the finished electronic components. This dual dependency magnifies vulnerability, creating supply constraints and cost pressures across the consumer technology ecosystem.
- Home appliances also face growing risk. Energy-efficient motors in refrigerators, washing machines and air conditioners rely on rare earth permanent magnets. European manufacturers, already losing share in global retail volumes since 2019, now face increased competition, as Chinese brands such as Haier and Midea maintain secured access to domestic rare earth supplies. Without diversified sourcing or material alternatives, production slowdowns and margin erosion are likely to intensify.
Beyond consumer-facing industries, the US defence sector is an explicit target. Under the new Chinese controls, all military-related export licences will be automatically denied. In 2024, the Weapons and Ammunition industry employed over 122,000 people and generated USD45.2 billion in output, up from USD30.6 billion in 2019. The knock-on effects will extend across the supply chain: industries such as Machinery for Metallurgy, Forming of Metal and Powder Metallurgy, and Photochemicals and Explosives derive a significant share of their revenues from defence contracts. Supply disruptions will reverberate through these supplier industries, threatening production continuity, employment and the broader industrial ecosystem in the US.
Building resilience in critical material supply chains
The shift towards material sovereignty is prompting decisive action across industries. Recycling and circular economy solutions are emerging as immediate priorities, while longer term alternatives develop. Electronic waste recycling has evolved from an environmental initiative to a strategic necessity. Old smartphones and electronics contain significant concentrations of rare earths, creating a viable source of “urban mining”. Apple now sources nearly all magnets in its devices from recycled rare earths – a model likely to expand as regulations and corporate sustainability goals converge with supply security imperatives.
Diversifying sources of rare earths remains a parallel focus. Australia’s Lynas Rare Earths – the largest producer of rare earths outside China – is expanding refining operations in Malaysia, Australia and the US to reduce global dependence on Chinese output. However, even with increased investment, establishing full “mine-to-magnet” capabilities typically takes three to five years. Companies must therefore balance immediate supply security, through strategic stockpiling, with long-term resilience via alternative supplier relationships.
Innovation in product design also plays a growing role in reducing exposure. EV manufacturers, such as BMW, Tesla and Toyota, are accelerating their search for alternatives to rare-earth permanent magnet motors. These innovations require significant upfront R&D investment but can offer competitive advantages as supply constraints intensify.
The immediate outlook suggests managed escalation rather than full decoupling, with both sides maintaining negotiating flexibility ahead of the Trump-Xi APEC meeting in South Korea on 29 October. However, the fundamental shift towards supply chain weaponisation represents a lasting inflection point. Geopolitical risk can no longer be treated as an external shock – it must be integrated into core business strategy, influencing sourcing decisions, R&D priorities and geographic investment. Those who act early to build material resilience, circular value chains and trusted partnerships will define the next phase of global competitiveness.
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