On April 4,2025, the Chinese government announced a 34% tariff on all imported goods from the United States and imposed export controls on seven categories of medium and heavy rare earth-related materials, including samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. These materials have irreplaceable strategic value in military, new energy, and high-tech sectors.

China’s dominant position in the global rare earth supply chain is becoming increasingly prominent. China controls about 80% of the world’s rare earth refining capacity, with certain key rare earth elements like gallium accounting for as much as 97.67% of global production. This near-monopoly market position allows China’s export control measures to have immediate global impact.

Since China implemented its rare earth export restrictions, prices of some rare earth metals have surged. According to data released by Argus on May 6, the monthly assessment price of 99.5% dysprosium oxide in Europe has risen from $250-$310 per kilogram a month ago to $700-$1000 per kilogram. The landed price of 99.99% terbium oxide in Europe has increased from $930-$1000 per kilogram at the beginning of April to $2000-$4000 per kilogram. The price increases and levels of dysprosium oxide and terbium oxide are the highest since Argus started assessing the prices of these two products in 2015.

Rare earth elements are irreplaceable in modern industry, especially in high-tech and military fields

Table: Elements involved in China’s rare earth control and their main industrial applications

The escalation of the CHINA-US trade war has far-reaching impacts on the global industrial landscape and supply chain system, surpassing those of ordinary tariff disputes. In particular, China’s export control measures on medium and heavy rare earth elements will fundamentally alter the competitive dynamics and supply chain logic of multiple strategic industries. Rare earth elements, known as the “vitamins” of modern industry, are crucial for the stability of their supply, which directly affects the development security of key sectors such as national defense, new energy, and electronics information. The seven categories of medium and heavy rare earth elements involved in these control measures are precisely the most irreplaceable critical materials in these industries.

The new energy vehicle industry faces disruptive challenges

The global automotive industry is undergoing a historic transition to electrification, and China’s rare earth regulations have cast a shadow over this process. Modern electric vehicle motors primarily use neodymium-iron-boron permanent magnets, where the addition of terbium (Tb) and dysprosium (Dy) is crucial for maintaining magnetic performance at high temperatures. Major electric vehicle manufacturers such as Tesla, General Motors, and Volkswagen will all be directly impacted:

-Tesla’s drive motors use high-performance neodymium-iron-boron magnets containing dysprosium, which is the technical basis for its superior acceleration performance and range. Restricted supply of rare earths could force Tesla to adopt less efficient alternatives, affecting product competitiveness.

-General Motors ‘Ultium platform also relies on rare earth permanent magnet motors, and the company’s plan to launch 30 electric models by 2025 could be hampered by material shortages.

-Chinese electric vehicle companies, despite their advantage in local supply chains, will face international expansion constraints due to global market segmentation and trade barriers, leading to a “dual-track” electric vehicle market structure. The rise in rare earth prices has already had a substantial impact on the industry. This cost pressure will ultimately be passed on to consumers, delaying the price parity of electric vehicles and hindering global efforts to reduce emissions in the transportation sector.

The global auto industry is caught in a dilemma. The electric vehicle industry chain is highly dependent on rare earth materials, and both China and the United States are important markets. The trade war has forced automakers to consider splitting the supply chain, which will significantly increase costs and delay the electrification process.

The development of renewable energy has hit a bottleneck

The global energy transition also heavily relies on rare earth materials, which are at the core of clean technologies such as wind power, solar energy, and electric vehicles. Wind turbines, especially direct-drive permanent magnet wind turbines, require large amounts of rare earth permanent magnets. For example, a 3MW wind turbine typically needs about 600 kg of neodymium-iron-boron magnets, containing approximately 18 kg of dysprosium. The rise in rare earth prices will directly reduce the return on investment for wind power projects, affecting new installed capacity. Developers may turn to electromagnetic excitation generator technology, but this technology is larger and less efficient, making it less economically viable for offshore wind power. The pace of the energy transition could slow down. Limited supply and rising prices of rare earth materials will increase the standardization costs of renewable energy, hindering global emission reduction efforts.

-Rising consumer electronics prices: About 30 components in high-end smartphones such as iPhone use rare earth materials. Supply chain disruptions could lead to delays in new product launches and price increases.

-Tension in the supply of medical equipment: MRI equipment relies on gadolinium-based contrast agents, and 90% of the global supply comes from China. Medical diagnosis may therefore be affected.

-Limited electronic warfare capabilities: Military radars and electronic countermeasures equipment require rare earth materials to manufacture high-frequency devices, and the supply shortage will weaken the ability to update and maintain related equipment.

The restructuring efforts and challenges of the global supply chain

-Disconnection between mining and processing: Although the United States has rare earth deposits (such as the Mountain Pass mine in California), it lacks the ability to separate and refine rare earths. It will take five to 10 years and tens of billions of dollars to build a complete industrial chain.

-High environmental costs: The extraction of rare earths produces large amounts of radioactive waste and toxic substances, and strict environmental regulations make it difficult for western countries to expand production capacity. China’s dominance of the rare earth industry is partly due to its ability to bear these environmental costs.

-Shortage of technical personnel: Rare earth processing requires specialized technical know-how (know-how), and the world’s experts are mainly concentrated in China’s rare earth industrial centers such as Baotou and Ganzhou.

-Limitations of alternative materials: Although scientific research institutions are developing rare earth free permanent magnets, their performance is still unable to meet the needs of high-end applications, and the commercialization prospects are unclear.

The cooperation model between Japan and Australia offers part of the solution. Australia provides rare earth minerals and Japan provides refining technology, but the scale of this cooperation is limited and cannot meet global demand. Although the EU lists rare earth as a key raw material, local development faces public environmental concerns and lengthy approval processes.

The core value of rare earth permanent magnet lies in its excellent magnetic performance and stability, which is an important strategic resource. The rapid progress of the new generation information technology industry, high-grade CNC machine tools and robots, aerospace equipment, Marine engineering equipment and high-tech ships, advanced rail transit equipment, energy conservation and new energy and other fields are closely related to the rare earth industry.

Magnetic material supply follows downstream demand

Rare earth permanent magnet materials are alloys made from rare earth elements such as neodymium and samarium, along with iron and cobalt. Over 50% of global electricity consumption comes from motors, and compared to traditional motors, motors using rare earth permanent magnets can save up to 15-20% of energy. Moreover, the application of rare earth permanent magnet materials has enabled new energy vehicles, automotive components, frequency conversion appliances, and 3C smart electronic products to achieve greater lightweight and miniaturization. The development of humanoid robots and low-altitude aircraft industries will also have a positive impact on the demand for rare earth permanent magnet materials.

It is estimated that by 2028, the global consumption of high-performance rare earth permanent magnets will reach 227,100 tons, with a compound annual growth rate of 17.2% from 2023 to 2028. The humanoid robot sector is one of the key areas for future demand growth in high-performance neodymium-iron-boron magnetic materials and components. Magnetic components are assemblies formed by bonding or injection molding processes using neodymium-iron-boron and other magnetic materials with metals and non-metals, serving as critical components in the production of humanoid robots.

Analysis of economic and trade impact

The escalation of the CHINA-US trade war will have far-reaching impacts on both countries and the global economy. Its shockwaves will quickly spread from bilateral trade to multiple dimensions including global supply chains, inflation levels, and economic growth. As the world’s two largest economies, the intensification of the trade war between China and the US will lead to a restructuring of the global production network based on comparative advantages. Multinational corporations will be forced to consider building “dual supply chain” systems to serve both Chinese and US markets, which will significantly increase the overall cost of global production.

Overall, the escalation of this round of trade war between China and the United States will reshape the global trade landscape, with impacts far exceeding bilateral boundaries. In the short term, the global economy faces risks of slowing growth and rising inflation; in the medium to long term, the global supply chain will accelerate its restructuring, forcing countries to make difficult choices between efficiency and security, leading to an overall decline in the efficiency of the global production system, resulting in what is known as the “slow globalization” trend.