US-China tariff escalation disrupts rare earth exports and puts pressure on automotive supply chains

Last updated April 23

The tariff dispute between China and the US now appears to be in full (if erratic) swing. Since the Trump administration’s additional 104% tariff on Chinese goods, and China’s retaliation with its own additional 84% import tariff, which took effect on April 10,things have escalated even further. Most recently, the US then took another swing at China with a hike in levies to 145%, totalling 245%, and in response, on April 11, China set tariffs on US goods at 125%.

China has also suspended exports of certain rare earth minerals and magnets essential to vehicle, battery and semiconductor manufacturing. Exporters must now apply to the Ministry of Commerce for licenses that could take months to grant. China controls 69% of rare earth production and 90% of the world’s rare earthprocessing capacity.

Semiconductors are currently exempt from US tariffs but Trump said he would be announcing a tariff rate on imported semiconductors soon.

Supsended rare earth minerals and their uses in the automotive supply chain

China’s rare earth minerals and permanent magnets are vital for electronics, semiconductors and automotive components, so the constraints on exporting them will further strain automotive supply chains.

However, US Customs and Border Protection said that electronics, including smartphones and laptops, would be reprieved from the broader ‘reciprocal’ tariffs against China or the 10% tariffs against other countries.

The US said on April 9 that there would be a 90-day pause on a diversity of tariffs for 70+ countries (excluding China) that have shown an interest in negotiating on trade, with a blanket tariff of 10% for all of them.

However, that 90-day reprieve does not include tariffs specific to industry sectors, which means the 25% tariff on finished vehicle imports, remains in place and automotive suppliers are looking at the forthcoming enforcement of 25% tariffs on automotive parts, due to come in on May 3. Tariffs of 25% on steel, aluminium and their derivatives are also still in place.

In the face of these automotive tariffs, which are threatening millions in added costs per vessel calling at US ports, Anu Goel, executive vice-president, group service and after sales, Volkswagen Group of America, emphasised a calm, data-driven mindset. “There is no on-off switch for the supply chain,” he told delegates at our Finished Vehicle Logistics North America conference. “Every week you hold it, it takes three to four weeks to recover,” he said. His message was not to wait for clarity but plan amid chaos and speak with data, not emotion.

China-US parts trade

Tariffs have escalated on both sides of the North Pacific for a wide range of goods. In the automotive sector that includes electric vehicles, batteries and components, electronic parts, including semiconductors, body parts and assemblies, as well as steel and aluminium.

The US and China have relatively small existing trade in finished vehicles. The US imported just over 64,000 passenger cars and light trucks in 2024 (worth $2.5 billion), while it exported just under 100,000 units to China (worth $2.1 billion), according to the International Trade Association in the US Department of Commerce.

However, in the same year, the value of automotive parts imported to the US from China amounted to $18.25 billion. In the other direction, China imported automotive parts from the US worth $2.25 billion in 2024. China is one of the top five export destinations for US automotive parts and one of the top five countries from which the US imports automotive parts. Reciprocal tariffs threaten suppliers on both sides.