China’s rare-earth own goal

[BRUSSELS] In a face-to-face meeting last week, Chinese President Xi Jinping and US President Donald Trump reached a truce in their countries’ long-running trade war. Trump lowered tariffs on Chinese goods in exchange for the rollback of Chinese export controls on rare earths. Many have depicted the deal as a victory for China: by raising the spectre of a rare-earth supply shortage, Xi forced the US to make concessions on tariffs. But a closer look at the numbers suggests that China is not the rare-earth juggernaut it might seem to be.

Rare earths are essential to the manufacture of many high-tech products, from smartphones to fighter jets, and at first glance, China appears to have a near-monopoly on them, accounting for more than 70 per cent of the United States’ rare-earth imports. But this figure represents relatively unprocessed rare-earth metals, total US imports of which amount to only US$25 million annually. While China takes in more than US$21 million of that total, this is a negligible fraction (0.001 per cent) of overall US imports.

Even if the US lost access to rare-earth metals, the damage to its economy would be limited. For example, one key application of these minerals is to make stronger permanent magnets. But there are perfectly functional, if more expensive, alternatives. Imagine that it costs 10 times more to make magnets without Chinese-sourced rare earths; that is still only US$250 million – a rounding error for a country with a gross domestic product of nearly US$30 trillion.