Bloomberg has reported that China is threatening to restrict the supplies of rare earth metals as part of its ongoing trade war with the United States. This isn’t the first time China has used rare earths as a tool in its diplomacy. People who know the history of China’s rare earths dominance should understand instantly why such a threat is indicative of why America must get tough on Chinese trade policies in the first place.
China didn’t come to dominate rare earth metals because of its natural endowment, but instead because the country subsidized production in order to eliminate competition around the world. China also allowed producers much lower environmental standards than those found in the West. Does that sound like free trade?
Now that the Trump administration is taking a hard line against China’s subsidies, the country’s Communist leaders are using the power they have acquired via those same subsidies as a weapon against outside pressure. Bloomberg reports:
Beijing’s threat to use its dominance of rare earths in the trade war risks serious disruption to U.S. industry, by starving manufacturers of components commonplace in everything from cars to dishwashers and military equipment. And, it’s a stranglehold that might take years to break.
China dominates rare earths mining, but new projects are being assessed globally.
China could wreak maximum havoc by squeezing supplies of the magnets and motors that use the elements, said Jack Lifton, co-founder of Technology Metals Research LLC, who’s been involved with rare earths since 1962. The impact on American industry could be “devastating,” he said from Michigan.
“There is no such thing as an automobile sold in the U.S. or made in the U.S. that doesn’t have rare-earth permanent magnet motors somewhere in its assembly,” Lifton said. “It would be a tremendous hit to the consumer appliance industry and the automotive industry. That means washing machines, vacuum cleaners, cars. The list is endless.”
Beijing is gearing up to use the minerals as a counter in its trade battle with Washington, according to a salvo of media reports in China on Wednesday, potentially exploiting U.S. reliance on China for about 80% of its supply. It would represent a significant escalation in a trade dispute that has already roiled markets and threatened global growth.
Read more here.
Jeremy Jones, CFA
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