Top American and Chinese officials agreed on Tuesday to ease trade tensions as they attempted to blunt the impact of US President Donald Trump’s tariffs. One topic that was high on their agenda was rare-earth elements. 

Automakers from Japan, India, Europe and North America have raised alarm in recent days about the shortage of magnets, which are made from rare-earth elements and are essential to making multiple parts, from side mirrors to sensors. 

The shortage, which spooked companies including Suzuki Motors, was reportedly a result of China’s ‘restrictions’ on the export of rare-earth products.  

International news outlets have referred to the Chinese measures with different terms: ‘curbs’, ‘controls’, and a few even went with an outright ‘ban’. What actually happened is somewhere in the middle of all this. 

Beijing hasn’t prohibited exports. It rather introduced a licensing regime where companies apply to the government before they can get their hands on the much sought-after magnets. 

China dominates the rare-earth supply chain, controlling nearly 90 percent of the supply of the powerful magnets that go into everything from cell phones to wind turbines. 

“I think it’s more interesting to call something a ban,” says Julie Klinger, author of Rare Earth Frontiers: From Terrestrial Subsoils to Lunar Landscapes. 

“That’s why rare-earth elements continue to be called ‘rare-earths’ rather than people talking about lanthanum, cerium, praseodymium and neodymium. We have our own way that we come to understand and pay attention to these materials. Terms like embargo and ban call our attention to them,” she tells TRT World. 

Klinger and other experts have long argued that calling these elements ‘rare’ is a misnomer. They are primarily part of the lanthanide series that appears at the bottom of the periodic table. 

Across the world, there are more than 800 mineable deposits of rare-earth elements. 

The problem is that they are found in small concentrations along with other minerals such as iron or phosphates, says Klinger, who is an associate professor at the University of Delaware’s geography department. 

The distinction between an outright ban and other reasons that could lead to a shortage is important since it helps avoid further polarisation at a time when global economic output is taking a hit because of tariffs and trade restrictions. 

After the boat rammed in 

The fear that China was gobbling down the global rare earth supply became a fixation for the Western press and politicians fifteen years ago. 

In September 2010, Japanese coastguards detained a Chinese fisherman near the contested Diaoyu Islands in the East China Sea.

Why exactly he was taken into custody remains a matter of speculation. Japanese officials say the fisherman, Zhan Qixiong, rammed his boat into one of its coastguard vessels. The Chinese side maintains that he only wanted to catch fish on the islands. 

Whatever the real reason, the episode set in motion events that hit nascent wind turbine and hybrid battery manufacturers hard. 

Klinger writes in her book that a few Chinese officials at one of the ports, without tacit approval from Beijing, stopped shipment of goods to Japan. Among the withheld containers were those carrying rare-earth elements. Reports of a Chinese ‘embargo’ pushed up prices to unprecedented levels. 

“Calling it an embargo sends a really important signal to markets. It means there’s going to be a halt in supply. Something that was abundant is now scarce. That makes rare-earth elements more valuable, and that redirects the attention of investors,” says Klinger. 

A similar scenario unfolded in April this year when China introduced its licensing requirement for the export of rare earth magnets, days after the US raised tariffs on Chinese goods. The world’s two largest economies are embroiled in a tariff war. The US has imposed similar licensing requirements for American chip makers, blocking the sale of high-end semiconductors to Chinese firms. 

Calling it a ban “benefits a whole set of business interests, and it also redirects the interest of investors and even public entities in terms of how they disperse funds toward this sector,” says Klinger. 

It’s equally important to remember that China came to dominate the rare-earth market as a consequence of US economic policy. 

Spoils of liberalisation 

Since the 1950s, successive Chinese leaders had laid stress on building more factories and bringing production from other parts of the world as part of Beijing’s industrialisation programme. 

The effort to produce more goods got a major boost in the 1980s when US President Ronald Reagan and UK Prime Minister Margaret Thatcher began promoting a liberal economic order that encouraged Western firms to move production to China, where labour was cheap. Around the same time, China undertook policy reforms that opened the doors for the private sector. 

“That was like an irresistible siren song to companies in the West, which, in pursuit of further profits, were looking for places where labour was cheaper and environmental regulations were less stringent,” says Klinger, who had spent time researching China’s Bayan Obo rare-earth mine. 

High environmental cost is one reason why rare-earth production has concentrated in the hands of Chinese miners over the years. Rare earths often come out of the ground with radioactive material that is expensive to properly dispose of. 

China not only dominates rare earth mining and refining, which is used to separate the elements from other minerals. China also produces almost all the high-powered magnets, which are also essential for America’s F-35 Lightning jets. 

Despite all the talk around rare-earth elements, the size of the global magnets market is only $12 billion, according to IMARC, a consulting firm. This is because cars, phones or jets use rare-earth end products, including magnets, in small quantities. 

As the global markets are hoping that rare-earth supply will not get disrupted with US and Chinese officials holding talks, Klinger says she is going to wait, gather facts and then determine if Beijing hampered the trade in crucial minerals. 

“I’m adopting a wait-and-see approach,” she says. 

“I’m guessing, similar to the 2010 situation, we will find that yes, there were some detectable signatures, but they weren't at all of the magnitude that was suggested. And in fact exports from China continued and, in some cases, even increased.”