How Trump’s Trade War Is Pushing Carmakers Back to China
Major automakers including Ford, General Motors, and international players like Toyota and BMW are scrambling to find ways around China’s export controls on rare-earth magnets. These tiny but essential components are vital for everything from electric motors to windshield wipers. With China controlling roughly 90% of global supply—and tightening restrictions—some manufacturers are considering moving more production to China to avoid factory shutdowns.
This is the ironic twist of a trade war meant to bring manufacturing jobs back to the U.S. Instead, Trump-era tariffs and retaliatory export controls are cornering automakers into shipping unfinished parts to China or even shifting entire production lines there just to access critical components. Ford, for example, recently paused production of the Explorer SUV due to a rare-earth shortage.
In April, part of China’s retaliation to “Liberation Day” Tariffs began requiring companies to apply for export licenses to ship magnets made with rare-earth elements like dysprosium and terbium. The result? A virtual freeze in exports without technically implementing an export ban. Magnets are still allowed out of China without this license—but only if they’re embedded in finished products like motors. So automakers are exploring workarounds, such as exporting motors from the U.S. to China, inserting the magnets there, then shipping them back.
Who’s Affected
Ford: Shut down Chicago Explorer plant for a week in May.
General Motors: Reportedly evaluating rerouting of motor assembly to China.
Toyota & BMW: Expressed concern about delays in license approvals.
European and Indian carmakers: Facing similar disruptions due to delayed exports.
The situation highlights a fundamental vulnerability in America’s industrial strategy: overreliance on China not just for raw materials, but for the refined, high-tech components that modern vehicles require. Efforts to build out alternative supply chains are underway, but they take time. And with regulatory EV targets looming, reverting to gas-powered cars isn't a viable stopgap.
What makes this more troubling is that it was entirely foreseeable. Rare-earth elements are critical not just for electric vehicles, but for a wide array of defense, energy, and technology applications. Any strategy that involved escalating a trade conflict with the world's dominant supplier of these materials should have accounted for this dependency. Instead, the U.S. launched a tariff regime without first securing a fallback supply chain, leaving key industries vulnerable to retaliatory measures. The rare-earth crisis is not merely a failure of execution; it's a failure of strategic foresight.
While carmakers are now scrambling to secure their supply chains, it's important to note that the implications of rare-earth dependency stretch far beyond the automotive industry. These elements are essential to critical defense applications including:
F-35 Fighter Jets: Incorporate about 920 pounds of rare-earths for advanced targeting, propulsion, and communications.
Virginia-Class Submarines: Use approximately 9,200 pounds of REEs for sonar and stealth capabilities.
Tomahawk Missiles and JDAMs: Rely on REEs for propulsion and guidance systems.
Unmanned Aerial Vehicles (UAVs): Depend on rare-earths for navigation and targeting.
Radar and Sonar Systems: Enhanced with REEs for improved performance and detection accuracy.
At Far Point Global, we are closely monitoring these developments. While we do not trade in rare-earth metals directly, we recognize the profound cross-sector implications of this supply chain disruption. Critical materials like these underpin not only the automotive industry but also the broader ecosystem of innovation and production. Understanding the ripple effects across markets is essential to anticipating future challenges and identifying strategic opportunities.
The rare-earth magnet dilemma isn’t without precedent. History is replete with examples of well-intended trade policies that produced unintended and often damaging consequences:
Smoot-Hawley Tariff Act (1930): Intended to protect U.S. jobs during the Great Depression, it sparked global retaliations and worsened the downturn.
Embargo Act (1807): Meant to pressure Britain and France, it crippled the U.S. economy and helped pave the way to the War of 1812.
The Great Grain Robbery (1973): U.S. grain sales to the USSR at subsidized prices led to domestic shortages and global food price spikes.
2002 Steel Tariffs: Temporarily protected steelmakers but hurt downstream industries and were overturned after WTO challenges.
Trump-era Tariffs: Meant to cut reliance on China, they often raised costs for U.S. firms and failed to catalyze major domestic manufacturing booms.
These cases underscore how protectionist policies can backfire if not paired with robust domestic industrial strategies. The current magnet crisis is simply the latest in a long pattern.
Recommendations
Accelerate Rare-Earth Refining Capacity: The U.S. must invest in domestic or allied refining capabilities for rare-earth elements.
Coordinate with Allies: Pool resources and R&D with the EU, Japan, and South Korea to diversify the magnet supply chain.
Incentivize Onshore Innovation: Provide tax credits and grants for companies developing magnet-free or reduced-REE motor technologies.
Reassess Trade Strategy: Use this moment to critically evaluate whether punitive tariffs without corresponding industrial policy deliver the intended outcomes.
The rare-earth magnet crisis is more than a supply chain hiccup—it’s a case study in policy backfire. What was intended to bring jobs home may now push production further into the arms of America’s main geopolitical rival. If the U.S. wants to lead in electric vehicles and advanced manufacturing, it must do more than play defense. It needs a forward-looking, coordinated industrial strategy—fast.