In a move that may ease tensions in the automotive sector,China has reportedly issued temporary export licenses for rare earth elements to suppliers of the top three US automakers. This decision follows a conversation between President Donald Trump and his Chinese counterpart, President Xi Jinping.

The backdrop to this development involves China, which controls approximately 90% of global rare earth element production, key components in automotive manufacturing and green energy technologies. The contry had previously restricted these exports in April after President Trump imposed what he termed “reciprocal tariffs”.

ChinaS Export Restrictions on Rare Earth Elements

The scarcity of rare earth minerals had begun to negatively impact US businesses. Last month, Ford temporarily halted production of its Explorer SUV at its Chicago facility as a direct outcome of the restrictions.

Automakers in Europe were also feeling the pinch. According to the European Association of Automotive Suppliers, “The European automotive supply industry is already experiencing significant disruption due to China’s recent export restrictions on rare earth elements and magnets. These restrictions have led to the shutdown of several production lines and plants across Europe, wiht further impacts expected in the coming weeks as inventories are depleted.”

Maros Sefcovic, the European Union’s trade commissioner, highlighted the importance of rare earth exports during a meeting with Chinese commerce minister Wang Wentao. Sefcovic stated,”I informed my Chinese counterpart about the alarming situation in the European car industry,but I would say industry as such because clearly rare earths and permanent magnets are absolutely essential for industrial production.”

“I just concluded a vrey good phone call with President Xi, of China, discussing some of the intricacies of our recently made, and agreed to, Trade Deal.”

US-China Trade Relations

Earlier in the week, President Trump and President xi spoke amidst concerns that the trade truce established in May was faltering, with both nations accusing each othre of violating the Geneva agreement.

The call was initially disclosed by Fu Cong, china’s ambassador to the United Nations. President Trump later confirmed the call, stating, “I just concluded a very good phone call with President Xi, of China, discussing some of the intricacies of our recently made, and agreed to, Trade Deal.” He also noted, “The call lasted approximately one and a half hours, and resulted in a very positive conclusion for both Countries.”

President Trump clarified that the discussion focused solely on trade,excluding topics such as the iran or Russia/Ukraine conflicts.Further trade discussions are scheduled to take place in London the following week.

China’s Rare Earth Export Strategy

China’s management of rare earth exports has sparked concern internationally, given their vital role in manufacturing various goods.

While China has reportedly begun issuing licenses for these exports, some observers view them as a strategic tool for exerting influence on the US and other nations.

Andrew Gilholm, head of China analysis at consultancy Control Risks, commented, “The simple truth is we don’t have a lot of precedent for this. The export controls are a dream tool for Beijing; thay can tweak, tighten, loosen, make it apply to all countries or to one country.”

According to Jin Canrong, a professor of international relations at Renmin University in Beijing, “I hadn’t realized just how significant this rare earth card was before. Now the US side is clearly anxious and eager to resolve this issue.” He further stated, “But of course, we’ll link this issue to others – the US is restricting China on chips and jet engines, then China certainly has every reason to make use of this card.”

US Restrictions on AI Chip Exports

The US has placed restrictions on the export of advanced AI chips to China. In April, the-Trump administration announced export controls on Nvidia’s H20 chips. Nvidia had initially designed these chips specifically for the Chinese market after earlier restrictions prevented the export of their top-tier chips. Following the ban, Nvidia reportedly wrote off $5.5 billion in inventory.

Paul Triolo, Partner and Senior VP for China at DGA Group, noted, “The effects of the controls are twofold. They have the impact of reducing the ability of U.S. companies to access the China market and, in turn, have accelerated the efforts of the domestic industry to pursue greater innovation.” He added, “The bottom line is, the controls have incentivized China to become self-sufficient across these supply chains in a way they never would have contemplated before.”

In response to China’s rare earth export policies, other countries are exploring ways to diversify their supply chains. However, establishing robust alternative supply chains will require considerable time, given china’s current dominance in the sector.