Europe’s automotive sector is facing production challenges as China imposes export controls on rare earth minerals, a move prompted by ongoing trade disputes with the US and impacting supply chains across the EU.
Donald Trump’s trade war with China has created unexpected consequences for Europe’s car industry, as back-and-forth tariffs and retaliatory measures between Washington and Beijing have led to a halt in critical raw material exports from China.
European car production lines are experiencing shutdowns due to shortages of rare earth magnets, essential components in both electric and traditional vehicles, as well as in other sectors such as defense. “Supply chains are running empty, and the risk is significantly increasing by the day, by the hour,” said Mathias Zink, CEO of German auto supplier Schaeffler.
In April, China introduced export controls on seven rare earth minerals. While these controls were a response to US tariffs, they apply globally and require companies to obtain a license for every shipment. Each license application can take a month or more to process, causing some large companies to opt for air freight, which Zink estimates increases costs fivefold compared to sea shipping. Smaller suppliers often cannot afford this option.
The application process also demands significant paperwork, including proprietary information. Zink described the documentation as “an unprecedented effort.”
China’s decision to make the controls global was seen as a move to target Europe, according to Juliana Bouchaud, a senior analyst at the Rhodium Group. She noted the controls are also a response to EU trade investigations into Chinese-made electric vehicles, which have resulted in new duties and market restrictions.
These trade disputes are expected to persist, especially with an EU-China summit scheduled for July. China argues the export controls are necessary to safeguard national security, as rare earth materials are also used in defense products.
Bouchaud explained, “This is China's way of building pressure to avoid any alignment with the U.S.,” following the EU’s exposure to 50% tariffs by the Trump administration.
EU trade chief Maroš Šefčovič addressed the situation with Chinese counterpart Weng Wentao, stating, “We are working hard to drive progress ahead of the leaders' summit in July, which I trust will create fresh momentum to reshape our economic and trade relations,” during the Brussels Economic Security Forum summit.
At the same summit, the EU announced 13 new projects as part of the Critical Raw Materials Act, aimed at reducing dependency on China. The law restricts the EU to sourcing no more than 65% of certain raw materials from a single country.
“Export bans obviously do tend to strengthen our will to diversify further,” said Industry Commissioner Stéphane Séjourné.
Currently, China controls 90% of the rare earth mineral market, making European suppliers and automakers highly dependent on Chinese exports.
