China gears up to weaponise rare earths as retaliation in trade war

Beijing is gearing up to use its dominance of rare earths as a counter in its trade battle with Washington, according to a salvo of media reports in China that included hints from the state planning agency.

The U.S. shouldn’t underestimate China’s ability to fight the trade war, the People’s Daily, a flagship newspaper of the ruling Communist Party, said in a commentary Wednesday. It isn’t hard to answer the question whether China will use rare earths as a weapon as retaliation in the trade war, the paper said.

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About 80% of US rare earths supplies come from China
 

China is “seriously” considering restricting rare earth exports to the U.S. and may also implement other countermeasures, the editor-in-chief of the Global Times, a newspaper affiliated with the ruling Communist Party, said in a tweet. An official at the National Development & Reform Commission told CCTV that people in the country won’t be happy to see products made with exported rare earths being used to suppress China’s development.

The nation’s producers have rallied hard in recent weeks on the view that rare earths could be an ace in the trade war. President Xi Jinping visited a rare earths facility earlier this month, accompanied by his chief U.S. trade negotiator, fueling speculation that the strategic materials could be weaponized in China’s tit-for-tat with the U.S. on trade.

Rare earths have already featured in the trade dispute. The Asian country raised tariffs to 25% from 10% on imports from America’s sole producer, while the U.S. excluded rare earths from its own list of prospective tariffs on roughly $300 billion worth of Chinese goods to be targeted in its next wave of measures.

The US relies on China, the dominant global supplier, for about 80% of its rare earths, which are used in a host of applications from smartphones to electric vehicles to military gear. Rare earths are relatively abundant in the earth’s crust, but mine-able concentrations are less common than other ores.

China’s rare earth market is dominated by a handful of producers including China Northern Rare Earth Group, Minmetals Rare Earth Co., Xiamen Tungsten Co. and Chinalco Rare Earth & Metals Co. The nation has form in using the elements to make a political point. It blocked exports to Japan after a maritime dispute in 2010, although the consequent spike in prices saw a flurry of activity to secure supplies elsewhere, which would be the risk again if Beijing follows through with its threat of retaliation.

Foreign Dependence

The US relies on overseas shipments for a range of critical minerals

Still, China’s stranglehold is so strong that the U.S. joined with other nations earlier this decade in a World Trade Organization case to force the nation to export more amid a global shortage. The WTO ruled in favor of America, while prices eventually slumped as manufacturers turned to alternatives.

In December 2017, U.S. President Donald Trump signed an executive order to reduce the country’s dependence on external sources of critical minerals, including rare earths, which was aimed at reducing U.S. vulnerability to supply disruptions.