China’s rare earth export curb prompts "force majeure" claims, putting India’s auto and EV supply chains at risk

Over 35 Indian importers have not received any shipment of rare earth magnets alongside pending licence approval from China, creating havoc in the automobile sector. Importers of China are now in legal consultation to eliminate the possibility of a "force majeure clause (FMC)" within their supply contacts with the automobile Original Equipment Manufacturers (OEMs). With China being a dominant leader in rare earth, how will this curb impact the Indian automobile sector? 

OEMs are undertaking intense discussions with the suppliers about providing a grace period where no penalties would be imposed. However, the imports can further invoke the FMC clause if there is no hope after the graced period. One importer of rare earth magnets proposed talking with China to resolve the issue and obtain permission. If the negotiation terms are not met, measures to protect Indian rare earth would be required. 

However, the imports seeking legal action urge China's recent restrictions, leaving them with no viable alternatives, making the FMC a necessity rather than just a mere legal action. This has especially been opened by the auto and EV makers, who rely heavily on OEMs, resulting in the stoppage of overall production. 

Fuel for China's restricted rare earth exports 

As an oppressive response to the US restriction upon the Chinese technologies, especially those involved in the semiconductor industry, insulated to impose restrictions on China's rare earth exports. China being a dominant of rare earth, this move reflects a stand against the ongoing trade war with the US. 

However, China's restrictions have created a supply disruption, creating an environment of tension for the automakers, semiconductor companies, military contractors and aerospace manufacturers worldwide. 

China is currently consulting with its legal teams to invoke the possibility of a "force majeure clause" within its supply contacts with automobile OEMs. With this move, China shields any future penalties possibly imposed by OEMs upon delivery failures leading to production stoppage under the agreement. 

Impact on India's auto sector 

Indian automobiles, especially the EV sector, rely on exporting rare earths, likely mixtures, magnets, and alloys. This hit a roadblock due to China's curb on rare earth exports to India. Tension lingers over the sector as extracting this rare earth is difficult and expensive to extract. This further disrupts the Indian government's push to surge the EV sector with the budget allocated for 2025. 

According to the report by the Economic Times, in FY25, India imported 870 tonnes of rare earth magnets valued at INR 306 crore (USD ). In another report by Moneycontrol, China holds 70 per cent of the global rare earth metals mining and 90 per cent of its production, creating an immense challenge for the EV sector. Moreover, this might lead the EV makers to charge hiked prices from their consumers by 8 per cent. 

India's rare earth imports from China 

In 2021, India's total rare earth imports stood at USD 17.2 million, whereas China's contribution stood at USD 5.23 million. In the subsequent year, India's total rare earth imports declined to USD 14.2 million, whereas China issued USD 4.89 million. India's rare earth imports declined further to USD 13.1 million, whereas China provided USD 5.32 million, representing an increase of 8.08 per cent from the previous year.  

India restricts rare earth supply to Japan

As a response to China's dominant step in curbing rare earth supply, India further takes a bold step, restraining a 13-year-old rare earth export agreement with Japan in the wake to secure domestic supply. Initially, the move focused on reducing foreign dependency and boosting local capabilities. 

In 2021, India's rare earth exports stood at USD 47.9 million, whereas Japan imported a total of USD 7.12 million. In the subsequent year, India's rare earth export stood at USD 75.8 million, representing a hike of 58.25 per cent, and Japan imported a total of USD 11.3 million, showing a 58.07 per cent increase. In 2023, India's rare earth exports reduced by 30.91 per cent to USD 57.9 million, whereas Japan held USD 2.82 million, showing a fall of 300.7 per cent. 

Also read: India to suspend a 13-year old rare earth export deal with Japan to curb dependency on China

Alternative trading opportunities for India

As per investingnews.com, countries like the US produced 45,000 tonnes of rare earths after China in 2024. Following this, Myanmar produced 31,000 tonnes and Australia produced 13,000 tonnes in 2024. However, according to Ministry of Commerce and Industry data, India imported rare earth from Malaysia at 1,142,000, Kenya at 1,009,550 tonnes and Indonesia at 156,000 tonnes. With these countries exporting at a higher rate, India still depends on China or as the numbers still don’t match the export volume of India’s neighbour.

However, at present the Indian government is in talk with China to develop a resolution as well as looking for support from other countries in importing rare earth magnets.