China's Rare Earth Crackdown: Why Defense and Auto Sectors Face Critical Shortages

In an exclusive interaction with ANI, Mukherjee said while the e-mobility industry will face temporary delays, the real long-term impact will fall on defence manufacturing.

"E-mobility is going to hit the hardest in terms of there's going to be a lag, there's going to be a slowdown in the process, but ultimately that market is going to recover," she said. "Because they're not particularly targeting that market or they're not restricting exports to that market. What is going to get affected the most is the defense manufacturing organization."

Mukherjee explained that when China's export controls came into effect in April, the e-mobility industry, currently the largest consumer of rare earths, experienced immediate slowdowns. However, she clarified that the bottleneck was not due to a shortage of materials but a bureaucratic choke point.

"It was not because there was not enough material in the market; it was just that it was controlled from one point, and it never made it to the consumers," she said.

Following the implementation of the restrictions, exports were halted, creating a massive backlog. "Hundreds of applications just came from European automobile manufacturers alone," Mukherjee said, adding that India too was caught off guard due to its dependence on China for chips and magnets. "Everyone started whistleblowing because they did not have access to magnets; they were not prepared," she added.

Mukherjee said, the process was centralized to an extreme, "during April and May, only five officials in China were processing hundreds or even thousands of export applications, resulting in long delays." The export paperwork also demanded disclosure of sensitive supply chain and intellectual property data, which further complicated compliance.

She said China has drawn a clear red line: "China has made it clear that it will not supply to any defence manufacturing organization." Companies with more than 50 per cent equity in any defence-linked entity, or those producing technology with potential military applications, including AI, semiconductors, and advanced robotics, "will come under intense scrutiny."

This, she warned, will have wide-ranging effects beyond the auto and defence industries, from consumer electronics and chip manufacturing to robotics and catalyst production.

While e-mobility is expected to recover, Mukherjee cautioned that defence manufacturing will face sustained difficulties. "All those accounts are a very small sector of the demand if you compare it to the grand scheme of things, but it is a very critical application," she said.

Highlighting the centrality of rare earths in modern warfare, Mukherjee noted: "In an F-35 fighter jet, these materials account for almost 4 per cent of the total weight. Without those rare earths and rare earth permanent magnets, you wouldn't be able to make it." These magnets are essential for motors in fighter jets and submarines, she explained, adding that "applications like submarines and F-35 jets require a high temperature, and that's why they need a higher content of heavy rare earths."

Rare earths are also indispensable in other defence technologies such as missiles, radars, sonars, lasers, and smart bomb activation systems. "Even though the quantities are small, without those, these systems won't function," Mukherjee said, warning that the restrictions have already led to "empty cupboards" for defence manufacturers struggling to secure alternative supplies.

- ANI