U.S. Dependence on China for Rare Earth Magnets Is Causing Shortages

Two decades ago, factories in Indiana that turned rare earth metals into magnets moved production to China — just as demand for the magnets was starting to soar for everything from cars and semiconductors to fighter jets and robots.

The United States is now reckoning with the cost of losing that supply chain. The Chinese government abruptly halted exports of rare earth magnets to any country on April 4 as part of its trade war with the United States.

American officials had expected that China would relax its restrictions on the magnets as part of the trade truce the two countries reached in mid-May. But on Friday, President Trump suggested that China had continued to limit access.

Now, American and European companies are running out of the magnets.

American automakers are the hardest hit, with executives warning that production at factories across the Midwest and South could be cut back in the coming days and weeks. Carmakers need the magnets for the electric motors that run brakes, steering and fuel injectors. The motors in a single luxury car seat, for example, use as many as 12 magnets.

Factory robots depend on rare earth magnets, too.

“This is America’s, and the world’s, Achilles’ heel, which China continuously exploits,” said Nazak Nikakhtar, who was the assistant secretary of commerce overseeing export controls during Mr. Trump’s first term.

The Chinese government has said little lately about its rare earth export restrictions. Kevin Hassett, the director of the White House National Economic Council, said on ABC’s “This Week” on Sunday that Mr. Trump and China’s leader, Xi Jinping, could speak about trade as soon as this week, though no date had been set.

After China stopped all exports, it said that future shipments would require separate export licenses. China’s Ministry of Commerce has struggled since then to issue licenses. It gave a handful to European companies in mid-April and a few more for American companies last week, but world supplies are dwindling fast.

“There are a few approvals coming through, but they are far from being sufficient to prevent imminent production halts,” said Jens Eskelund, the president of the European Union Chamber of Commerce in China. “We are still facing a major disruption of supply chains.”

To make matters worse, some Chinese rare earth magnet makers have stopped producing while waiting for permission to resume exports. The weekslong gap in magnet production is moving through supply chains and may soon reach manufacturers.

“China could bring America’s automotive assembly plants to a standstill,” said Michael Dunne, an automotive consultant specializing in China.

China produces 90 percent of the world’s nearly 200,000 tons a year of high-performance rare earth magnets. Japanese companies produce most of the rest in Japan and Vietnam, mainly for Japanese manufacturers.

The United States produces practically none, although small factories will start full production this year in South Carolina and Texas. A succession of administrations has tried to restart the industry ever since China drew attention to its dominance by imposing a two-month embargo on shipments of rare earths to Japan during a territorial dispute in 2010.

But little has happened because of a gritty reality: Making rare earth magnets requires considerable investments at every stage of production. Yet the sales and profits are tiny.

Worldwide sales of mined rare earths total only $5 billion a year. That is minuscule compared with $300 billion industries like copper mining or iron ore mining.

China has a formidable competitive advantage. The state-owned industry has few environmental compliance costs for its mines and an almost unlimited government budget for building huge processing refineries and magnet factories.

Processing rare earths is technically demanding, but China has developed new processes. Rare earth chemistry programs are offered in 39 universities across the country, while the United States has no similar programs.

China refines over 99 percent of the world’s supply of so-called heavy rare earths, which are the least common kinds of rare earths. Heavy rare earths are essential for making magnets that can resist the high temperatures and electrical fields found in cars, semiconductors and many other technologies.

The sole American rare earths mine, located in Mountain Pass, Calif., stopped producing in 1998 after traces of heavy metals and faintly radioactive material leaked from a desert pipeline. Chinese state-controlled companies tried three times without success to buy the defunct mine before it was acquired by American investors in 2008.

A $1 billion Pentagon-backed investment program followed in 2010 to improve environmental compliance and expand the mine and its adjacent refinery. But the costly complex was unable to compete when it briefly reopened in 2014, and closed again the next year.

MP Materials, a Chicago investor group that included a minority partner company partly owned by the Chinese government, bought the mine in 2017. The mine reopened the next year, but shipped its ore to China for the difficult task of separating the various kinds of rare earths.

Only in recent months has the mine become able to chemically separate the rare earths in more than half its output. But this loses money because processing in China is so inexpensive.

MP Materials built the new factory in Texas that will turn separated rare earths into magnets.

A considerable bottleneck lies in transforming separated rare earths into chemically pure metal ingots that can be fed into the furnaces of magnet-making machines. A New England start-up, Phoenix Tailings, is addressing that shortcoming, but its small scale underlines the challenge.

Phoenix Tailings has taken over much of the staff and equipment of Infinium, a start-up that had tried to do the same thing. Infinium ran out of money in 2020, when American policymakers were more focused on the Covid-19 pandemic than rare earths.

With Chinese rare earth minerals hard to get, Phoenix makes the metal from mine tailings: leftover material at mines that has already been processed once to remove another material, like iron.

Phoenix Tailings has four machines each the size of a small cottage at its factory in Burlington, Mass. Each one produces a 6.6-pound ingot every three hours around the clock. The operation’s overall capacity is 40 tons a year, said Nick Myers, Phoenix’s chief executive. He declined to identify the buyer but said it was an automotive company.

Phoenix is installing equipment at a larger site in Exeter, N.H., to produce metal at a rate of 200 tons a year — still tiny compared with Chinese factories that produce more than that in a month.

Thomas Villalón Jr., Phoenix’s chief technical officer, said that ramping up production quickly was important during a trade war: “It’s a race right now.”

Li You contributed research.