China not afraid to utilise rare earth minerals in trade war with US

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  1. In lieu of the recent trade disputes between the US and China, China has been signalling that it could possible restrict the export of rare earth minerals to the US. It being the largest producer of these raw materials by a wide margin, the US relies on these exports for their high-growth sectors such as electric car and wind turbine production. Last year, the US Geological Survey designated these materials critical to the economy and national defence.

“China is seriously considering restricting rare earth exports to the US,” tweeted the editor of Chinese state-run Global Times this week. Last week, Chinese President Xi Jinping visited various rare earth mining and processing facilities, further adding to the recent speculations that China can raise the prices of the minerals or make them unavailable altogether if the trade war continues further.

“You suggested that rare earths could become one of China’s countermeasures against the U.S.’s unwarranted suppression…What can I tell you is that if anyone were to use products that are made with the rare earths that we export to curb the development of China, then the people of [south Jiangxi province where rare earths are mined] as well as all the rest of the Chinese people would be unhappy,” said the Chinese official, in an interview. While the rare earth imports are a small portion of the $420 billion U.S goods deficit with China, the materials are critical with the creation of goods such as iPhones, electric vehicles, and advanced precision weapons.

“This is still not official. The U.S. only imported about 4,000 tons of rare earths, worth about $175 million. The problem is most of the rare earths we import are embedded already in the technology. If we buy a computer, they are already in it. That makes it harder for China to cut us off,” said Marc Chandler, global market strategist at Bannockburn Global Forex. The growing trade war has increased its focus on technology, with the US ban on the selling of component’s to China’s Huawei as an example. “With the rare earths headline, I think investors are realizing that this is more than just about a trade war,” said Michael Katz, partner at Seven Points Capital.

Rare earth minerals are a group of 17 elements that are used in a number of sectors, including renewable energy technology, oil refinery, electronics, and the glass industry. There are relatively few places in the world that mine or produce them. Extraction is very difficult and is potentially harmful to the environment. Chinese mines account for around 70% of the global output. Last year, almost 90% of all the processing into usable oxides was done in China. China’s exports of rare earth oxides have almost doubled over the past five years.

Around 80% of the rare earths imported by the United States comes from China, according to US government data. The one rare earth mine operating in the United States sends its ore to China for processing – and already faces a 25% import tariff imposed by China. The restriction of exports to the United States, if enforced, could have a major impact on major US industries worth trillions of dollars that rely on rare earth minerals.

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