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  HOME | Oil, Mining & Energy (Click here for more)

Rare Earths Emerge as China’s Possible Trump Card in Trade War against US

BEIJING – Chinese President Xi Jinping’s recent inspection of a rare earths processing plant has raised speculation that the sector could emerge as a new trick up China’s sleeve in the ongoing trade war with the United States, although experts consulted by EFE remained divided over the consequences of such a move.

On Tuesday, Xi visited a plant that processes these materials in the city of Ganzhou in the eastern Jiangxi province along with Vice Premier Liu He, a trusted aide and one of the chief negotiators in the trade negotiations with Washington,

The US imports around 80 percent of its rare earths from China, and experts are seeing the visit as Xi’s next move in reply to US President Donald Trump’s recent ban on Chinese telecommunications company Huawei after both sides imposed fresh tariffs on each other’s products as the ongoing trade negotiations seemed to falter.

Official Chinese daily Global Times on Tuesday cited experts saying that China could use the materials as a pressure tactic, restricting their export.

Rare earths are a set of 17 chemical elements – specifically the 15 so-called lanthanides as well as scandium and yttrium – which are key to manufacturing defense and high-technology products such as smartphones, wind turbines, and batteries for electric vehicles.

Wang Kam Fai, a professor at the Chinese University of Hong Kong, told EFE that such a ban was “one of Xi’s trump cards, forcing the US chip manufacturers to re-think about their banning strategies.”

However, he warned that the longer the two sides were involved in a technological-commercial war, the more consumers would suffer.

American academician James H Nolt, an associate professor of international relations at the New York University and an expert on China, agreed that an embargo on these materials was the most logical next step for Xi.

“Rare earths are vital raw materials for the manufacture of all sorts of electronic products, including cell phones. China produces nearly all of the world supply. A cut-off could cripple some US high-tech manufacturers,” Nolt said

However, he added that the magnitude of the effect of such a measure remained to be seen as it was not known if the US companies had stockpiled the materials.

Political analyst Willy Lam told EFE that such a measure would not work because the US could find the metals in other countries such as Australia and Vietnam and it already had reserves.

“The Chinese tried this trick with Japan (putting an embargo on rare earth exports to Japan) in 2010. But Japan quickly found other suppliers and the impact on Japanese electronics production was very short-lived,” said Lam, who works at the Chinese University of Hong Kong.

He said Xi’s visit was meant to show his displeasure with Washington, but “Beijing will not use the rare earth trick again because it won’t work.”

Another important aspect surrounding the exploitation of rare earth resources is its environmental impacts, with China already announcing measures in a 2012 white book, such as imposing stricter emission standards and raising taxes.

“Actually, many places in the world, e.g. Australia, Vietnam, and the US itself, have rare-earth mines. It’s just that exploitation of rare earth is ecologically damaging, so the advanced countries allowed China to dominate’ the production of this mineral,” Lam said.

According to the white book, China fulfills 90 percent of the global demand even though its reserves amount to just 23 percent of the total worldwide.

China’s policy on rare earths has faced controversies in the past too, such as the World Trade Organization ruling in 2014, which said that China had violated its norms by imposing restrictions on the exports of some rare earth materials. Beijing later scrapped the caps.

In 2015, the Chinese industry minister published a plan to “streamline, improve and consolidate” production, and in 2016 Beijing kicked off a national campaign against the illegal exploitation of the material, which had affected the market.

The analysts largely agreed that if China took prohibitory measures on the export of rare earth materials, it would be in response to Washington’s decision to include Huawei in a list of companies who have been denied access to US technology and markets.

This has led to Google’s parent company Alphabet withdrawing the licenses of Huawei products, although the US Trade Department has allowed a 90-day period before the ban is fully enforced to facilitate a transition.

Although Alphabet’s decision has been the most visible result of the US government ban and has generated the most media attention, Huawei’s American component manufacturers, along with a German partner, have also announced that they were breaking trade links with the company.

American chip manufacturing firms Intel, Qualcomm, Xilinx Inc and Broadcom, along with Germany’s Infineon and US-based memory chip makers Micron and Western Digital have announced that they would follow the US government’s directive and stop supplying to Huawei.

 

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