Unintended U.S.-Chinese Trade Policy Consequences Put the Auto Industry in a Rare Earth Bind

The law of unintended consequences is straightforward: policies intended to address one problem can create entirely new ones. Co-Pilot defines it as “outcomes of actions that are not anticipated or intended, often leading to unexpected results in social, economic, and political contexts.”

This situation reminds us of that famous clever Matt Damon moment from the 1997 classic Good Will Hunting—but we’ll come back to that in a moment.

A Trade Policy Backfire?

What if a U.S. trade policy designed to reshore manufacturing actually ended up pushing more production of critical components—like electric motors—into China’s hands?

That’s not hypothetical. It’s a very real risk as the auto industry grapples with a looming shortage of rare earth magnets, essential to both EV and internal combustion engine (ICE) vehicles.

Why Rare Earth Metals Matter

Rare earth materials are embedded in numerous vehicle components, including side mirrors, stereo speakers, oil pumps, windshield wipers, and sensors.

• China controls 70% of global rare earth mining,
  

• 85% of refining capacity, and
  

• 90% of alloy and magnet production.
  

This spring, China began requiring companies to obtain government approval before exporting magnets made from rare-earth metals. While China agreed during a tariff truce with the Trump administration to “loosen” export controls, approvals for highly sought-after magnets have been slow-walked.

Last month, President Trump stated that Chinese President Xi Jinping had agreed to allow rare earth metals and magnets to flow more freely to the U.S., but skepticism remains.

How Serious Is the Threat?

Industry groups representing major OEMs and parts manufacturers have already warned the White House: without a reliable supply of rare earth components, vehicle production could be drastically reduced—or halted altogether.

This echoes the chip shortage crisis that crippled auto production just a few years ago, leaving thousands of vehicles sitting unfinished in lots, waiting for parts.

Even though rare earth metals are often discussed in the context of EV batteries and motors, they’re just as critical for ICE vehicles. The average EV requires about one pound of rare earth elements, while an ICE vehicle uses roughly half that amount.

Can We Find Alternatives?

Japan managed to diversify its rare earth supply after a similar dispute with China 15 years ago, reducing its reliance on Chinese materials to about 58%.

But for the U.S., alternative sources and technologies aren’t ready for prime time. Building new supply chains will take years, time the industry doesn’t have.

In the short term, some manufacturers may be forced to:

• Build vehicles, but park them incomplete until parts arrive
  

• Eliminate certain features or options
  

• Or even ship unfinished parts to China for completion—an expensive and time-consuming workaround.
  

And it’s not just rare earths. A 2024 European Commission report found China also controls 50% of the global supply of 19 other critical raw materials, including manganese, graphite, and aluminum.

As Andy Leyland, co-founder of supply chain specialist SC Insights, told Reuters: “This is just a warning shot.”

So, Where Do the “Apples” Come In?

Now, let’s revisit that Good Will Hunting moment.

In the movie, Matt Damon’s character, Will, humiliates a pretentious Harvard student who tries to upstage him. Later, spotting the same student in a diner, Will presses Skylar’s phone number against the window and delivers the famous line:

“Do you like apples? … Well, I got her number. How do you like them apples?”

It’s a clever, triumphant mic-drop moment.

In this case, you could imagine a similar exchange between global leaders. After years of U.S. tariffs and reshoring policies aimed at reducing reliance on China, we now face a situation where China still controls the levers—and can “slow walk” approvals that affect the entire automotive industry.

If Xi Jinping wanted to deliver his version of that iconic line, it might sound like:

“You wanted to reshore manufacturing? Well, we control the magnets. How do you like those apples?”

The Bottom Line

What started as a well-intended policy to strengthen U.S. manufacturing may deepen dependence on Chinese-controlled rare earth metals,threatening vehicle production, supply chains, and pricing in the months ahead.

The industry now faces a familiar choice: scramble for short-term workarounds or invest heavily in building alternative supply chains that will take years to mature.

Either way, the rare earth metals issue is a stark reminder that trade policy rarely has simple cause-and-effect outcomes—and that in a global economy, one country can still hold the “apples” that everyone else needs.