The fallout from the U.S.–China trade war has made its way to Europe’s auto factories. Several European auto supplier plants have reportedly suspended output due to shortages of rare earth components, key materials used in electric motors, braking systems, and steering mechanisms.
While overseas automakers such as BMW (BMWYY0.00%) and Mercedes-Benz (MBGAF-2.77%) say their core operations are still running, the supplier network is cracking under the strain — with industry groups warning that more shutdowns are imminent if the situation doesn’t improve.
The auto struggles date back to April, when China decided to curb those exports of rare earths and related materials, a move widely interpreted as economic retaliation after President Donald Trump imposed steep tariffs (145%) on Chinese goods. China’s dominance in rare earth processing — accounting for over 90% of global supply — has created a chokehold on industries worldwide.
Despite Trump’s assertion Thursday on Truth Social after a call with Chinese President Xi Jinping that “there should no longer be any questions respecting the complexity of Rare Earth products,” China’s slow-walking of export licenses continues to paralyze key sectors of the auto supply chain. The recent export restrictions have led to significant price surges for critical minerals such as dysprosium and terbium, which are essential for electric vehicle motors.
European officials are scrambling to contain the damage. The EU trade commissioner has pledged to clarify the situation with Beijing as quickly as possible, while companies such as Mercedes are already building buffers (such as stockpiling rare earths) to protect against further shocks.
Even automakers that have tried to reduce dependence on China haven’t fully escaped the crunch. BMW’s magnet-free electric motor still requires rare earths for secondary systems such as wipers and window regulators. And while companies such as Volkswagen (VWAGY-2.90%) say they aren’t feeling the pinch yet, supplier groups warn that any inventory buffers may only last weeks.
Governments and companies around the world are scrambling to break free from China’s rare earth dominance. Australia’s Lynas (LYSCF-1.00%), the largest rare earth producer outside China, has seen its stock surge as global buyers hunt for alternatives. The EU has identified 13 projects to secure critical minerals through domestic mining and international partnerships. Meanwhile, in the U.S., MP Materials (MP-1.02%) has begun producing rare earth metals at a facility in Texas — though progress has been patchy due to lingering tariffs and logistical constraints.
China, meanwhile, is tightening its grip. In addition to slowing export licenses, Beijing has introduced a mandatory online tracking system for rare earth magnet producers. The system requires companies to report trading volumes and disclose client names. And despite reported progress in trade negotiations, it isn’t clear when China might let up.
American auto suppliers sent a letter Thursday pushing for the U.S. to take immediate steps to address the Chinese export controls, which are beginning to lead to shortages.
“The situation remains unresolved and the level of concern remains very high,” American auto suppliers group said in a letter from MEMA, the Vehicle Suppliers Association, first reported by Reuters (TRI+0.10%). “Immediate and decisive action is needed to prevent widespread disruption and economic fallout across the vehicle supplier sector.”
—Joseph Zeballos-Roig contributed to this article.
The post Trade war backlash is now shutting down car factories in Europe appeared first on Quartz.
