Tariff Talk: U.S.- China Rare Earth Deal

You’ll find the biggest news this week on the tariffs and the auto industry in a
separate story about General Motors investing $4 Billion dollars to assemble more
vehicles inside the borders of our country. Objectively, this is the reason the tariffs
were enacted. CEO Mary Barra seems to be publicly “all-in” on moving a huge
amount of production back to America. Only time will tell us how this pays off for
GM. Meanwhile…

U.S.-China Rare Earth Deal Averts Third Major Auto Supply Crisis

The U.S. and China have reached a trade agreement aimed at restoring rare earth and magnet exports critical to the auto industry. President Donald Trump announced the framework on June 11, following weeks of disruption sparked by China’s export restrictions. The deal, which still requires formal approval from both leaders, will maintain tariffs at recently reduced levels and secure upfront shipments of key materials from China.  This has been a huge fear of all the automakers in the United States and many have likened it to being worse than the microchip shortage.

Rare earths are essential to a broad range of automotive systems, particularly in electric vehicles. From motors and sensors to transmissions, power steering, and speakers, these components depend on specialized magnets and heavy metals that are largely refined in China. When China curtailed exports in April in retaliation for new U.S. tariffs, supply chains were once again destabilized. For automakers and suppliers, it marked the most severe threat since the microchip shortage crippled production across 2021–2023.

While a preliminary deal in May temporarily lowered tariffs, it failed to resolve licensing bottlenecks on China’s end. Only a fraction of requested export licenses were granted, with inconsistent application processes and concerns about intellectual property disclosure slowing approvals. In some cases, automakers had already begun to idle production, including a Ford plant in Chicago.

China currently refines nearly all heavy rare earths globally, including terbium, critical for automotive magnets. Though the U.S. and others are working to localize rare-earth processing, the timeline is long and uncertain.

Some suppliers have considered relocating parts manufacturing to China to bypass export limits on raw materials, while others are exploring redesigns to reduce reliance on rare-earth content—though these efforts bring technical hurdles and delays.

The new framework offers a temporary reprieve, but long-term vulnerability remains as the industry continues to navigate tariff risk and global material dependency.

Other News:

• The U.S. is set to implement a new bilateral trade pact with the UK—what’s been dubbed the “cars for agriculture” deal. Under the agreement, U.S. tariffs on British car exports will drop from 27.5 % to 10 % (for up to 100,000 vehicles annually), while the UK will reciprocate with tariff relief on U.S. beef and ethanol.  This move aims to ease trade tensions and provide relief to UK automakers such as Jaguar and Land Rover.
• As I have been telling you, analysts at Cars.com report a continued surge in used vehicle prices, fueled by the combo of high new-vehicle tariffs, constrained inventory, and robust consumer demand. With new tariffs inflating costs, more buyers are turning to the used market—putting pressure on inventory and prices there too.  I watched the auction two days ago and prices continue to raise on used cars.

Photo Credit:Lightboxx/Shutterstock.com.