Why are China’s rare earths so central to the US-China spat?
China’s near-total monopoly of these rare earth minerals limit Trump’s ability to sanction it
[BEIJING] US President Donald Trump on Oct 11 threatened fresh 100 per cent tariffs on China, in addition to existing levies, alongside export controls for critical software.
This latest onslaught in the trade war between the world’s two biggest economies is Trump’s retaliation against the “hostile” export controls imposed by Beijing on rare-earth minerals.
It follows an earlier Oct 10 threat of trade action against China after the country further tightened export restrictions on rare earths ahead of talks between Trump and President Xi Jinping at the end of the month.
Rare earths metals, the resources at the heart of the recent trade spat, refer to the 17 silvery-white elements that are essential in the production of just about everything – from cars (including electric vehicles) to aircraft engines, fighter jets, military radars, smartphones and data centres.
Even with efforts to reduce dependence on Beijing for these critical minerals, the US is almost entirely reliant on China for them. The country produces over 90 per cent of the world’s processed rare earths and rare earth magnets and has used export restrictions to throttle shipments.
China’s near-total monopoly of these rare earth minerals limit Trump’s ability to sanction it, as estimates suggest that the US’ stockpile of rare earths could be emptied in around 90 days should Beijing cut off their supply.
BT in your inbox
Start and end each day with the latest news stories and analyses delivered straight to your inbox.
Here’s what you need to know about the new rules:
What did China announce?
China already tightly controlled its exports of rare earths but on Thursday added five new elements, bringing the total subject to restrictions to 12.
It also limited the export of dozens of pieces of equipment and material used to mine and refine rare earths, processes where it is the world leader.
The restrictions force exporters to apply for licences. An earlier round of controls in April caused shortages of rare earth magnets which led car plants around the world to pause operations.
In a nod to fears of a repeat, China said it would facilitate licence approvals, but intended to reject applications related to defence and would closely scrutinise those related to advanced semiconductors and certain kinds of artificial intelligence.
What does it mean for foreign producers?
Beijing said for the first time that it intends to apply its regime to foreign producers who make certain rare earth products using Chinese material or equipment.
Washington has had similar rules since the 1950s, using them in recent years to stop foreign semiconductor companies selling chips to China if they are made with US technology.
Rare earth producers anywhere in the world must now get approval from China for sales if they use the country’s rare earth equipment. Rare earth magnet makers must do the same if their goods contain more than trace amounts of Chinese rare earths.
The rules appear designed to entrench China’s dominance over the rare earth supply chain and hamstring efforts to build alternatives.
Do the rules apply to any foreign producer using Chinese rare earths?
No. China is only claiming global jurisdiction over the production of some rare earths and related magnets.
So, a washing machine made in Germany with a Chinese rare earth magnet does not need permission from the Ministry of Commerce to be sold in other European countries. However, they would apply to a German company making rare earth magnets using Chinese rare earths.
How could China enforce these new rules?
It’s unclear. Chinese law allows for penalties ranging from fines to imprisonment for breaking export control laws but it would be difficult to prosecute foreign producers.
For foreign rare earth companies reliant on Chinese material or equipment, falling foul of the rules could put them at risk of being cut off from Chinese suppliers.
That risk is likely to add impetus to work already underway in the US. and Europe to diversify away from the Chinese rare earths supply chain. REUTERS, ADDITIONAL REPORTING BY THERESE SOH, THE BUSINESS TIMES
Copyright SPH Media. All rights reserved.
