- The auto industry has been grappling with a shortage of rare earth metals that could pause some factories
- President Trump says he has a new deal with China to secure their flow
The auto industry may have just dodged a bullet. A reported deal to lower some trade barriers between the U.S. and China could secure the flow of rare earth metals used in many electronic components and motors.
China controls much of the world’s supply of the metals. The country had slowed exports to the U.S. as part of a negotiation over tariffs. That temporarily shuttered at least one car factory and threatened to close more.
President Trump said his administration had struck a deal with China to restore the flow of materials. But no one outside the administration knows what the agreement says – its text has not yet been published.
Rare Earth Metals Litter Modern Cars
- They’re in batteries and electric motors, including tiny motors in gas-powered cars
- A shortage could be similar to the microchip shortage of 2021-2023
Rare earths are found all over today’s cars.
They’re most common in magnets that power electric motors. Electric vehicles (EVs) and hybrids use large electric motors to turn their wheels. All cars, including gas-powered models, use dozens of them to spin fans, provide power steering, and even operate seat belts.
The auto industry, already reeling from tariffs that raise prices on new cars and the parts used to build them, could little afford a significant supply chain disruption.
Industry publication Automotive News explains, “Some industry executives expected the rare-earth restrictions to have an impact comparable to the semiconductor shortage, which caused carmakers to cut more than 17 million vehicles from production schedules in 2021 through 2023, according to an estimate by AutoForecast Solutions.”
The Deal Is Mostly a Mystery Right Now
- Trump says he has a deal, and rare earths trade will resume
- No one outside the White House has seen the agreement, and it may stay secret
CNBC reports, “Representatives from both sides had on Tuesday revealed that a deal had been reached on trade after a second day of high-level talks in London.”
Posting on his Truth Social network, Trump wrote, “FULL MAGNETS, AND ANY NECESSARY RARE EARTHS, WILL BE SUPPLIED, UP FRONT, BY CHINA.”
However, neither side has released details of the agreement. Bloomberg reports, “Secretary Howard Lutnick said he thinks the London deal will be approved within days and that he didn’t expect a written version of the pact to be released, meaning it could be tough to know exactly what both sides agreed to beyond general outlines.”
Automakers Need Insurance Against This Happening Again
- Analysts say China could hit pause again
- Automakers are stockpiling and looking for domestic supplies
The crisis may have eased, but it could flare up again easily. A Bloomberg analysis finds that China “hit the world’s pain point” with its rare earths controls, “and will do so again.”
Automakers have begun war-gaming longer-term solutions to the problem.
Hyundai Motor Group, parent company of Hyundai, Kia, and Genesis, revealed that it had stockpiled a year’s supply.
The Detroit Free Press notes that General Motors has “formed strategic alliances with two rare earth mineral processing companies to domestically source rare earth minerals.”
Attempts to build domestic supplies have fizzled out before when China lowered prices.