Why do rare earth elements matter? Why does China have a hold on these?

In April, China, the world’s largest storehouse of rare earth minerals and the dominant exporter of rare earth magnets, imposed export restrictions on seven of these elements and finished magnets, mandating export licences.

The new framework demanded detailed end-use disclosures and client declarations, including confirmation that the products would not be used in defence or re-exported to the US — in the wake of growing tensions with that country over Trump’s tariffs.

With the clearance process taking at least 45 days, approvals were significantly delayed, with the growing backlog slowing clearances and tightening global supply chains.

Late on Tuesday (June 10), at the end of two days of talks between Beijing and Washington in London, senior US and Chinese negotiators said they have agreed on a framework to get their trade negotiations back on track.

US Commerce Secretary Howard Lutnick told reporters after the meetings that resolving the rare earths issue was a fundamental part of the agreed-upon framework, and that the US would remove the “measures” it had imposed in response.

Also read: US, China agree on framework to resolve trade disputes

While China has signalled it may speed up the issuing of export licenses for the rare earth elements, in turn, it wants the US to lift restrictions on Chinese access to the technology used to make advanced semiconductors.

So, what are rare earth minerals and the related magnets which China effectively used as leverage to get its way with the mighty US? Why are they so important today?

What are rare earth minerals?

Minerals containing significant concentrations of rare earth elements (REEs) as the major metal constituents are termed rare earth minerals. These minerals are the primary source of REEs.

The 17 elements that comprise the REEs are Scandium, Yttrium, Lanthanum, Cerium, Praseodymium, Neodymium, Promethium, Samarium, Europium, Gadolinium, Terbium, Dysprosium, Holmium, Erbium, Thulium, Ytterbium, and Lutetium.

Some examples of rare earth minerals — which contain deposits of these REEs — are bastnasite, monazite, xenotime, loparite, and lateritic ion-adsorption clays.

What are rare earth magnets?

Rare earth magnets are made from alloys containing REEs. These are known for their high magnetic strength and are the strongest type of permanent magnets available.

These alloys are made by combining REEs like neodymium, samarium, or dysprosium, with metals such as iron, cobalt, or boron. The two main types of rare earth magnets are neodymium magnets and samarium-cobalt magnets.

Also read: Ukraine, US agree on framework economic deal including rare minerals: Report

Are rare earth elements really rare?

No. In fact, these elements are found abundantly in the Earth’s crust. Cerium, for instance, is more common than copper.

What makes them “rare” is the fact that they cannot be easily mined. They are not found in concentrated ore deposits like, say, iron. Instead, they are dispersed in the Earth’s crust all together.

Hence, once they are mined, extensive processing is needed to extract them from the minerals and separate them from one another. It is the difficulty of mining them in economically viable concentrations that gives them the term “rare”.

Why do rare earth minerals or REEs matter so much?

REEs are present in just about everything that matters today, from smartphones and computers to MRI machines and electric vehicles.

From the magnets to the display screen, much of your smartphone is made of REEs. It’s the same for your laptop or desktop. These are used in hard drives, display screens, and other components.

Rare earth magnets are also vital for creating used in motors and generators. These are integral to Permanent Magnet Synchronous Motors (PMSMs) used in EVs for their high torque, energy efficiency and compact size. Hybrids also depend on them for efficient propulsion.

Besides, REEs have luminescent properties, prompting their use in LED and LCD screens and fluorescent lighting. REEs are also used in catalytic converters and medical imaging such as MRI contrast agents and other tools such as laser scalpels. Even some cancer drugs contain REEs.

In wind turbines, REEs are used in generators and other components, while various defence systems also use REEs.

Why does China hold so much control over REEs?

According to the International Energy Agency, China currently produces 61 per cent of all globally mined rare earth minerals and 70 per cent of mined REEs, while it accounts for 92 per cent of the refined REE output.

China’s REE reserves stand at a staggering 44 million metric tonnes while the next country on the list — Vietnam — produces half of that amount, 22 million metric tonnes. They are followed by Brazil (21 million metric tonnes), Russia (19 million metric tonnes), India (6.9 million metric tonnes), Australia (4.2 million metric tonnes), the US (2.3 million metric tonnes), and Greenland (1.5 million metric tonnes).

Also read: US, Ukraine sign economic deal after Trump's sustained pressure

China also produces nearly 90 per cent of the world’s rare earth magnets — primarily used in electric vehicles. Needless to say, the global supply chain for these elements and magnets is heavily dependent on China.

This upper hand that China has today is not because Mother Nature blessed it with an abundance of REEs but because the country was smart and enterprising enough to invest in mining and refining REEs since the 1980s. China offered economic incentives while loosening environmental norms, allowing it to outrun the West, which imposed stricter rules and faced higher costs.

Ironically, it was the US that led the world in producing REEs. The Mountain Pass mine in California was once the leading rare earth producer. Economic and environmental pressures forced it to shut down in 2002. Thus, by the early 2000s, China was ruling the REE world — as well as turning them into magnets, batteries, and electronics.

So, China has effectively arm-twisted the US. Where does India stand?

Wendy Cutler, a former US trade negotiator and now vice-president at the Asia Society Policy Institute, was quoted by news agency AP as saying that it would be unprecedented for the US to negotiate on its export controls.

“By doing so, the US has opened a door for China to insist on adding export controls to future negotiating agendas,” she said.

Coming to India, a Crisil Ratings report said on Tuesday (June 10) that a disruption in rare earth magnet supplies lasting beyond a month can impact production of passenger vehicles, including electric models, weighing on the domestic automobile industry’s growth momentum.

“The supply squeeze comes just as the auto sector is preparing for aggressive EV rollouts. Over a dozen new electric models are planned for launch,” Crisil Ratings Senior Director Anuj Sethi said, as reported by news agency PTI.

Commerce and Industry Minister Piyush Goyal also admitted on Monday that China’s restrictions on the export of REEs and magnets would affect the domestic auto and white goods sectors in the short term.

Also read: China blasts US for its computer chip moves, student visa threats

However, he added that the government and the industry are working actively on solutions, including diplomatic engagement. Goyal revealed that the Indian embassy is in dialogue with China and the commerce ministry is also working on the issue.

The automobile industry has reportedly sought government support in expediting approvals from the Chinese government for importing rare earth magnets. Various domestic suppliers have also sought approval from the Chinese government through their local vendors in China. However, no approvals have reportedly been granted so far.

Goyal added that the government is working on several other tracks to explore the availability of these goods from alternate sources. They are looking at Indian Rare Earths Limited by providing the necessary materials to be able to develop and speed up the development of domestic products, Goyal said.

Changes to the Mines and Minerals (Development and Regulation) Act are reportedly being fast-tracked as well. “In a way, it’s a wake-up call for all those who have become over-reliant on certain geographies. It’s a wake-up call for the whole world that you need trusted partners in your supply chain,” Goyal added.

When asked if the government is considering a PLI (production-linked incentive) scheme for the sector, the minister said he has discussed the matter with all the auto companies and they are “very” confident about solving this problem.

On alternative sources, Goyal said India could be developing some technologies. “So, the government, the industry, and startups and innovators are all working as a team and we are confident that there may be a problem in the short run but we will emerge winners in the mid to long runs,” he said.