Gracelin Baskaran and Meredith Schwartz
On April 4, China’s Ministry of Commerce imposed export restrictions on seven rare earth elements (REEs) and magnets used in the defense, energy, and automotive sectors in response to U.S. President Donald Trump’s tariff increases on Chinese products. The new restrictions apply to 7 of 17 REEs—samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium—and requires companies to secure special export licenses to export the minerals and magnets.
Q1: To what extent will the most recent export restrictions on rare earths impact U.S. sourcing of these critical minerals for defense technologies?
A1: There are various types of export restrictions: non-automatic licensing, tariffs, quotas, and an outright ban. The new restrictions are not a ban; rather, they require firms to apply for a license to export rare earths. This development has three implications: first, there will likely be a pause in exports as the Chinese government establishes this licensing system. Second, there is also likely to be disruptions in supply to some U.S. firms given that the announcement also placed 16 U.S. entities on its export control list, limiting them from receiving dual-use goods. All but one of the firms on the list are in the defense and aerospace industries. It is unclear how China will implement the new licensing system. And third, the licensing system may be dynamic and could incentivize countries across the world to cooperate with China to prevent disruptions in their rare earths supply.
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