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Europe's auto part suppliers suspend production due to China's restrictions on rare earths

As concerns grow about the impact of China's new restrictions on mineral exports, some European auto part plants have suspended production. BMW has also warned that its supply network is affected by a shortage of rare earths.

China's April decision to suspend the export of rare earths, magnets, and other related products has disrupted supply chains for automakers, aerospace companies, semiconductor firms, and military contractors all over the world. China is using this move to demonstrate its dominance in the mineral industry that is key to green energy and as leverage against the U.S. president Donald Trump. China produces 90% of all rare earths.

BMW, the German automaker, announced on Wednesday that a part of its supply network is affected by a shortage of rare earths but that its own factories are running normally.

The European auto supplier association CLEPA has warned that the shortage of rare earths is threatening manufacturing.

CLEPA said that only one quarter of the hundreds requests for export licences submitted by auto suppliers between April 1 and now have been granted. Some requests were rejected due to "highly formal" reasons, according to the association.

The warning did not name the companies, but it warned of future outages.

The process seems to differ from province to province, and IP-sensitive data has been requested in some cases, it stated. It added that if this was not done soon, then more plants could be affected as inventories run out in the coming weeks.

The curbs are not only a part of the broader package to retaliate against Washington's trade tariffs but they apply worldwide and are causing concern among business executives all over the world.

German and U.S. automobile manufacturers have complained about China's restrictions threatening production. This follows a similar complaint from an Indian electric vehicle maker last week.

Many people are lobbying for their governments to come up with a quick fix and scrambling to look for alternatives.

In an email, Wolfgang Weber said that some companies have only enough supplies to last for a few months or weeks.

He said that companies in China feel left out by the politicians, and they are looking to solve their problems on their own.

Swedish Autoliv, the largest maker of airbags in the world, has said that its operations have not been affected. However, CEO Mikael Bratta said he had set up a special task force to deal with the situation.

RELIANCE ON CHINA

Many automakers, including BMW, General Motors and ZF have been researching or developing motors that contain low-to-zero rare earths in an effort to reduce their dependence on China. However few have scaled production to lower costs.

BMW's latest electric car generation uses a motor that is magnet-free, but smaller motors like those powering windshield wipers and window rollers still require rare earths.

Volkswagen, the German automaker, has been informed that only a small number of Chinese export licences for rare earths have been issued to subcontractors. The company does not currently see any shortages.

Trump has focused his criticism on China's slow pace in easing its crucial mineral export controls. He claims that Beijing has violated the truce agreed last month for tariffs to be rolled back and trade restrictions to be lifted.

Trump is trying to redefine trade relations with China, the United States' largest economic rival. He has imposed steep tariffs on imported goods worth billions of dollars in an effort to narrow a deficit and bring back lost manufacturing.

Trump had imposed tariffs of up to 145% on China, only to reduce them after the stock, bond and forex markets sank due the the broad nature of the measures. China responded by imposing its own tariffs, and using its dominant position in supply chains to convince Trump to back off.

This week, Trump and Chinese President Xi Jinping will meet to discuss their differences. The export restrictions are likely to be a major topic of discussion.

In a post on social media, Trump stated that Xi was "VERY TOUGH AND EXTREMELY DIFFICULT TO MAKE A DEAL", highlighting how fragile the deal is. (Reporting from Victoria Waldersee, Marie Mannes and Hakan Ersen; Additional reporting from Hakan in Frankfurt; Writing Josephine Mason; Editing Emelia Sithole Matarise).

(source: Reuters)