Rare earth rattles: As US woos China, India watches and weighs its chances

As the 90-day deadline for US-China trade negotiations nears, global anxieties over rare earth supply chains are intensifying. While official statements from Washington suggest a willingness to ease tech export restrictions in return for freer Chinese rare earth shipments, analysts remain sceptical about any swift breakthroughs — especially as domestic tensions and international brinkmanship take centre stage.

“The London meetings may not clinch it, but you have to see that there was a 90-day pause on April 2nd. That deadline is not very far off and no big deals have been clinched by Mr Trump except with Britain,” says Swaminathan Aiyar, Consulting Editor at ET Now. “So, right now they [the US] are getting a little uneasy and willing to give way. Because of that, in the USA, there is this new thing called ‘TACO’ — Trump Always Chickens Out.”

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The Trump administration’s back-and-forth on tariffs has eroded some of its bargaining power, Aiyar argues, pointing to how Beijing retaliated in kind when Trump hiked import tariffs by 125%, ultimately forcing a climbdown. “The Chinese stood up, and Trump had to back down. That’s a lesson — if all of us stand up, then we have this guy who from being a dragon now is beginning to chicken out.”

This evolving standoff over rare earths — essential minerals used in everything from smartphones to electric vehicles — has left nations scrambling to rework supply chains previously anchored in China. The US itself is pumping $39 million into developing an independent rare earth supply system. India, too, is exploring its options, though it's early days yet.

“We have begun, but it will take a long time,” Aiyar says. “Frankly, we do not have very good domestic prospects. It will be more like trying to diversify our sources from other places.”

That said, Indian industries are already feeling the heat. “Our auto and smartphone sectors are both complaining that the supply chain is becoming very strained. Stocks of rare earths and permanent magnets are coming down to dangerous levels and if this doesn’t reach a conclusion soon, production may have to be cut from June.”

India’s stance has been cautiously pragmatic. While it has kept its bilateral tensions with China separate from the larger US-China dynamics, that also limits its leverage. “China knows very well that while all the other countries want to get other sources of supply, it’s going to take time. So, China has the upper hand — not just now but likely for the next year or two,” Aiyar notes.

"So, this is going to be an interesting Chinese lever that it may use again and again," added Aiyar.

India feels heat amid curbs
The chaos started with China in April imposing export restrictions on seven rare earth elements and finished magnets, mandating export licences.

A disruption in rare earth magnet supplies lasting beyond a month can impact production of passenger vehicles, including electric models, weighing on the domestic automobile industry's growth momentum, a Crisil ratings report on Tuesday said.

"The supply squeeze comes just as the auto sector is preparing for aggressive EV rollouts. Over a dozen new electric models are planned for launch, most built on PMSM platforms," Crisil Ratings Senior Director Anuj Sethi said. While most automakers currently have 4-6 weeks of inventory, prolonged delays could start affecting vehicle production, with EV models facing deferrals or rescheduling from July 2025, he added. A broader impact on two-wheelers and ICE PVs may follow if the supply bottlenecks persist for an extended period, Sethi said.

India's largest carmaker Maruti Suzuki India is recalibrating production of its upcoming model e VITARA due to the shortage of rare earth magnets, industry sources told news agency PTI. The auto major is looking to produce around 8,000 units of the model by September as against the earlier stated plan of rolling out over 26,000 units during the period. The company however plans to make up for the production dip in the subsequent months with stated target to produce around 67,000 units of the model this fiscal, sources said.

What is India doing?
Recently, Union minister Piyush Goyal said India is actively working to develop alternative sources and position itself as a reliable partner for global businesses looking to reduce dependence on Chinese suppliers.

Goyal further acknowledged that China's restrictions on rare earth exports will create short-term challenges, especially for India's automotive and white goods sectors. However, he expressed confidence that joint efforts by the government, industry, and innovators can turn these challenges into long-term opportunities.

At the same time, the government is ramping up support for Indian Rare Earths Limited, providing the necessary resources to increase domestic production. At the recently held India-Central Asia Dialogue in New Delhi, India and five Central Asian nations expressed mutual interest in jointly exploring rare earths and other critical minerals. In a joint statement, they called for an early meeting of the India-Central Asia Rare Earth Forum, signalling growing geopolitical urgency to diversify away from China’s near-monopoly.

As the rare earth puzzle deepens and trade talks meander, India may not be at the table right now — but it's certainly watching the game, preparing its own play.