China is flexing its supply chain muscles — and the auto industry is freaking out

China imposed restrictions in April on the export of rare earth magnets used in car production.Hendrik Schmidt/Getty ImagesChina dominates rare earth magnet production, and began limiting exports after Trump's trade war began.The magnets are crucial for some carmakers, with the restrictions throwing the auto industry into chaos.US and European suppliers warn that factories and production lines face shutdowns unless China relents.China is flexing its supply chain dominance as its trade war truce with the US teeters.Carmakers and parts suppliers in Europe and the US are scrambling to shift supply chains and warning of imminent production shutdowns as Chinese restrictions on rare earth metals and magnets push the industry to the brink of a serious supply shock.China halted all exports of rare-earth magnets — critical components for car manufacturers such as Tesla and BMW — in April, shortly after the Trump administration imposed a barrage of tariffs on trade partners and adversaries alike.Chinese authorities began allowing some exports in recent weeks, but global supplies have slowed to a trickle — and now carmakers are beginning to feel the pain. BMW's supply chain has been affected by the restrictions, a spokesperson for the German automaker told Business Insider.Although production at its vehicle plants was running on schedule, BMW was in discussions with suppliers to implement countermeasures, the spokesperson added.Workers on BMW's i3 production line.BMWMeanwhile, Bloomberg reported that Mercedes-Benz was discussing plans to stockpile key components. A spokesperson for the German automaker told BI it was in close contact with suppliers and "evaluating and monitoring the situation very closely," but did not "see any direct restrictions."Ford had idled a factory in Chicago as a result of a rare earths shortage. A spokesperson told BI the plant was operating again. 'Alternative ways'Sherry House, Ford's CFO, addressed the rare earths supply issue in a fireside chat at the UBS auto and auto tech conference in New York on Wednesday in comments reported by the Detroit Free Press.House said it was sometimes necessary to take mitigating action and "look for alternative parts or alternative ways to get things." While Ford had been coping, she added: "I don't know if at some point this is going to be a larger issue for us?"Japanese automaker Suzuki has also temporarily suspended production of its Swift hatchback, with Reuters reporting the pause was due to the rare earth restrictions. Suzuki did not respond to a request for comment.Rare earth materials such as dysprosium and terbium are crucial components of magnets that are widely used throughout the auto industry, in electric motors that power brakes and steering, as well as factory robots used to build cars.Although many of these materials can be found around the world, China has a stranglehold over the processing of rare earths into usable material, and produces 90% of the world's annual supply of rare earth magnets.That makes them a valuable lever to pull during a global trade war, with suppliers across the world warning that the auto industry's dependency on China has put it at risk of a serious supply chain shock.The European Association of Automotive Suppliers warned on Wednesday that several production lines and plants had shut down in Europe because of the restrictions, with "urgent action" needed to safeguard automotive production and thousands of jobs in the European Union.Hildegard Müller, president of the German Association of the Automotive Industry, said in a statement that although Chinese authorities had begun granting licences to export rare earth magnets, not enough were being granted to avert supply chain shocks."If the situation does not change quickly, production delays and even production stoppages can no longer be ruled out," Müller said.In a press conference on Wednesday, the European Union's trade commissioner, Maros Sefcovic, said he had raised the "alarming" situation facing the continent's car industry with his Chinese counterpart.'Real-time risks'The risk of disruption extends across the Atlantic.In a statement reported by Reuters, MEMA — which represents vehicle part suppliers in the US — warned that the restrictions were posing "serious, real-time risks" to automotive supply chains."The situation remains unresolved and the level of concern remains very high. Immediate and decisive action is needed to prevent widespread disruption and economic fallout across the vehicle supplier sector," the industry body said.In a joint letter to the Trump administration with an industry body representing automakers including General Motors and Hyundai, MEMA previously warned that the curbs could harm the production of everything from seatbelts to power steering and lead to the shutdown of vehicle production lines in the US.For a stressed-out auto industry, there's little sign of relief anytime soon.In a Truth Social post on Wednesday, Trump said Chinese Premier Xi Jinping was "extremely hard to make a deal with," after previously accusing China of reneging on a trade deal signed last month.Read the original article on Business Insider

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