China is reported to be considering the use of its dominance in the rare earth metal industry as a bargaining chip in the China – America trade war. Several Chinese news outlets, including CCTV, have reported that an official within the Chinese Communist Party cautioned that materials made using rare earth metals should not be used to hinder Chinese growth. In the wake of emerging American hostility towards Chinese electronics, this comment was taken as a thinly veiled threat to cut off America’s supply of the rare earth metals necessary for many technology companies.
Rare earth metals, contrary to what the name implies, are not so rare as they are extremely difficult to mine. Although China owns only about 40% of the rare earth metal global resources, it produces 78% of the world’s supply. Furthermore, 80% of the rare earth metals used in America are mined in China. These rare earth metals are critical to American technology companies, which are dependent on these metals to produce everything from phones to electric vehicles to precision weapons. Cutting off a major supplier of rare earth metals could seriously disrupt American tech companies’ supply chains and cripple them.
This is not the first time China has threatened the withholding of rare earth metals. Earlier this decade, China cut off exports of rare earth metals to Japan after a dispute over the detainment of a fishing boat with Japan. Bank of America Merrill Lynch analysts have said that China views its supply of rare earth metals as a strategic resource and have emphasized production for over 100 years. Washington has long acknowledged this dependence, with Trump signing an executive order in 2017 to reduce the country’s dependence on externally sourced minerals such as rare earth metals.
This threatened ban seems to be China’s response to America’s recent blacklisting of Huawei. An official from the Chinese National Development and Reform Commission has commented that China does not take the use of technology made with Chinese rare earth metals to suppress the country’s growth lightly.
Shares of rare earth miners shot up, with Chinese miner JL Mag Rare-Earth increasing by 10%.
Although America imported about USD 175 Million and 4000 tons of rare earth metals from China last year, most were already in the form of computers, phones, and other electronic devices. This complicates a potential trade ban, as a wide variety of sectors from mining to software development would feel a disruption. Should China choose to halt the movement of rare earth metals to America, it would be disrupting its own rapidly expanding technology sector and risk a further slowing of the Chinese economy.
Rare earth metals were noticeably absent from the list of items which Trump is considering adding tariffs to. These bans would greatly hurt technology companies on both the Chinese and American side, and further escalate the poor relations between China and America. A ban of this nature could change the nature of the trade war, especially before American President Trump and Chinese Chairman Xi Jinping meet in the G20 summit next month.