China Follows US Footsteps in Rare Earth Crackdown; Tesla Hit

China is taking a leaf from the United States’ playbook as it looks to choke supplies of critical rare earth metals to the country and step up the pressure on companies like Tesla.

Beijing has recently issued warnings to several South Korean companies to not send products containing China’s rare earth minerals to US defence firms, according to a report by the Korea Economic Daily (KED).

While the report did not specify the date of those warnings or the specific companies that were targeted, it said the Chinese government delivered the message in letters to Korean companies that make power transformers, batteries, displays, electric vehicles, aerospace and medical equipment.

Also on AF: China Mocks Trump’s Turnaround: ‘Tariffs to Drop Substantially’

Targeting South Korea, a close US ally, is reminiscent of similar steps taken by Washington in the last couple of years to execute its strict export controls on the flow of semiconductors to China.

Under the former Joe Biden government, South Korea faced tremendous pressure to choke off supplies of advanced chips to China — its largest trading partner.

Beijing’s decision to also target South Korea is in line with growing concerns in Seoul that the country is getting increasingly caught in the middle of the US-China trade war.

South Korea is an export-reliant country, and a huge chunk of its trade is centred around semiconductors, batteries and electric vehicles. While the previous US administration’s moves affected only Korea’s chip trade, China’s current clampdown will affect all three of those industries, considering rare earths are a crucial raw material for their production.

China produces around 90% of the world’s rare earths and rare earth magnets critical to these industries. Until 2023, it was also supplying 99% of the heavy rare earth metals that it has now completely stopped shipping to the US.

Analysts say the magnets and other finished products made of those heavy rare earths — which also fall under China’s export curbs — will be difficult to replace.

South Korea said in early April it had more than six months of stockpiles of some of the seven rare earths restricted by China, including dysprosium, used in special magnets found in the clean energy sector, including electric vehicles and wind turbines.

Tesla braces for impact

US military contractors, especially those focused on missiles, robotics and drones are expected to bear the worst hit from China cutting off rare earth exports to the US.

On Tuesday, the US’s biggest electric vehicle-maker Tesla said that the production of its Optimus humanoid robots had also been affected by China’s export restrictions of rare earth magnets.

US President Donald Trump’s close aide Elon Musk said China wanted assurances that its rare earth magnets are not used for military purposes, adding that the automaker is working with Beijing to get an export license to use rare earth magnets.

“China wants some assurances that these are not used for military purposes, which obviously they’re not. They’re just going into a humanoid robot,” he said during an earnings conference call, adding that it’s not a weapon.

China’s demand from Tesla is yet another move from the US’s playbook, considering Washington has cited Chinese military expansion as the driver of its chip export curbs.

The US has also previously demanded that allies such as Korea, Japan and the European Union ensure that advanced chips made with US technology don’t find their way to Chinese military contractors.

Korea ‘first target’

China, meanwhile, is unlikely to loosen its stance on rare earth exports in the near future, considering the ongoing trade war with the US has seen only little proof of cooling.

China now faces cumulative tariffs of up to 245% in the US, though Trump said on Tuesday those levies were set to drop “substantially”.

Analysts speaking to KED said “major Korean conglomerates leading the country’s exports could take a bigger hit,” as China steps up its retaliation to Trump’s tariff war.

The newspaper also noted that this was the first time China was extending export control measures on non-US companies. Korea has become the first target of its new approach, it noted.

The grind between the US and China will only add to troubles for Korea, which is also undergoing a period of strenuous political uncertainty.

South Korea’s industry ministry told Reuters on Wednesday it was checking with the Chinese government and South Korean companies in order to confirm the KED report.

“So far, it has not been confirmed that South Korean companies have received an official letter from the Chinese government as per the report,” the ministry said.

• Vishakha Saxena, with Reuters

Also read:

World Faces ‘Significant Slowdown’ From US Tariffs, IMF Says

EU Rejects US Offer to Cut Tariffs if it Pulls Away From China

China Vows to Retaliate if Trade Deals Hurt Its Interests

TransPacific Cargo Trade Decimated by Trump’s Tariff War

Concern Rises on Delisting of Chinese Firms on US Exchanges

Trump Wants Defence Costs Part of Tariff Talks With Asian Allies

Chinese Exporters Bank on Discounts, Patriotism Amid US Tariffs

China Says it Will ‘Shake Hands Not Fists’ to Beat US Tariffs

China Halts Rare Earth Exports, Warns US on Deep-Sea Metals ‘Plan’