Rare Earth Resources

US-China Trade War: Tensions Are Building after China’s Threat of Rare Earth Quotas

US-China Trade War: Tensions Are Building after China’s Threat of Rare Earth Quotas

As the US-China trade war continues, tensions are building after China’s threat to cut its rare earth quotas.

According to Chinese newspapers, China could use rare earths as a form of retaliation against an escalating trade war with the US, which would ultimately be throwing more fuel on the fire in a tariff war that is spiraling out of control. 

What is the definition of rare earths?

‘Rare earths are a series of chemical elements found in the Earth’s crust that are vital to many modern technologies, including consumer electronics, computers and networks, communications, clean energy, advanced transportation, health care, environmental mitigation, national defense, and many others.’

‘Because of their unique magnetic, luminescent, and electrochemical properties, these elements help make many technologies perform with reduced weight, reduced emissions, and energy consumption; or give them greater efficiency, performance, miniaturization, speed, durability, and thermal stability.’

Click here to read the full article by the Rare Earth Technology Alliance.

Last week’s tour of a rare earths plant, JL MAG Rare-Earth Co Ltd, by Chinese President Xi Jinping made some people suggest that China could use its influence as a key exporter of rare earths to the US as a form of retaliation amidst a growing trade war between the world’s two largest economies. Due to forecasts from analysts and economists indicating that the price of rare earths could increase because of the US-China dispute, shares in rare earth producers rose.

US-China trade war deepens

Chinese officials have not announced any changes in the way it exports rare earths to the United States, however, the media in China has indicated that a cut in the number of rare earths that are exported to the US could be imminent.

The largest newspaper in China, People’s Daily said:

By making unilateral moves to contain technological development of other countries, the United States seems to have overlooked one fact: the international supply chain is so intertwined that no economy could thrive on its own.

According to the U.S. Geological Survey, from 2014 to 2017 the United States imported 80 percent of its rare earth compounds and metals from China.

Along with the technological revolution and industrial evolution, rare earths are expected to be applied in more areas, and their strategic value will become more prominent, said the official. China has reiterated its stand in promoting multilateralism and tried to avoid a trade war that hurts public interests. But if necessary, China has plenty of cards to play.

Click here to read the full article.

China has a history of manipulating the exportation and sales of rare earths as leverage during periods of political disputes. So, it would be of no surprise should China decide to restrict rare earth sales to the US, especially since nearly 80 percent of rare earths that the US imports originate from China.

9 years ago, China cut its export quotas of rare earths following a collision between a Chinese cargo ship and a couple of Japanese coast guard boats. Consequently, in 2012, the EU, Japan and the US filed a report against China’s imposed trade restrictions of rare earths to the World Trade Organization (WTO). Then in 2014, the WTO reprimanded China for blaming the quotas on environmental factors.

Some Chinese investors have suggested that should the Chinese government introduce new quotas on its exports of rare earths to the US, the likelihood of China using the excuse that the trade restrictions are a result of concerns regarding national security are very high.  

China’s disapproval of the United State’s trade practices and justifications of restrictions based on national security concerns have been frequent. As reported by various media outlets, recently China has charged Washington with ignoring WTO regulations by banning the Chinese telecommunications giant, Huawei, from participating in the installation of the new 5G networks.

However, China has for a long time blacklisted American technology firms like Facebook and Google from participating in any business interaction with the Chinese markets due to concerns and suspicions it has in terms of the threat that US-based tech companies pose to the Chinese national security.

As a result of these types of restrictions, a few areas of the United States business community have urged the Trump administration to go after a mutual trade agreement with China. Shares in JL MAG Rare-Earth Co Ltd were propelled by an increase of 10.01 percent. China Rare Holdings Ltd rose over 40 percent and shares in the Australian Lynas Corp, increased by nearly 15 percent.  

According to the USGS (United States Geological Survey):

Domestic consumption of rare-earth imports in 2013 increased to 10,500 tons compared with 5,770 tons in 2012. Improved economic conditions and lower prices of rare-earth materials resulted in increased consumption of REOs. Prices for most rare-earth compounds declined in 2013. Prices for neodymium oxide used to produce magnets began the year at $78 per kilogram, but fell to $73 per kilogram by yearend. China continued efforts to restrict the supply of REOs and consolidate its rare-earth industry. China’s rare-earth production and export quotas for 2013 were 93,800 tons and 31,000 tons, respectively. In Malaysia, the commissioning and debottlenecking of a REO processing plant was underway. As of September, the Malaysian operation had produced 397 tons of REO-equivalent products. In Australia, a second concentration plant was being commissioned at the Mount Weld, Western Australia, operation, although production was limited by demand from the Malaysian processing operation.

Read the full report by clicking here.

From 2014 until 2017, 80 percent of all US rare earth imports originated from China. Various analysts anticipate that in the event that China imposes additional export quotas in order to restrict the flow of rare earth materials, it could result in an increase in rare earth mining operations in Australia and California.    

Aside from rare earth quotas, how else has China retaliated to the trade pressures from the US?

On May 29, 2019 tech giant Huawei filed a lawsuit against the Trump administration after calling for a summary judgment, in its most recent attempts to debunk US blacklisting against the company which Huawei considers to be efforts made towards blocking its business with the world markets.

US blacklist Huawei on grounds of national security concerns

Earlier this month as the Trump administration administered stringent sanctions against the Chinese tech giant, which at the same time had a sudden influence on the world’s tech markets, Huawei was forced into a blacklist that prevents American firms from working with the Chinese company.

Song Liuping, the chief legal officer for Huawei, on May 29th during a Huawei press conference said:

‘For many years, we have been working closely with rural operators to ensure that all Americans have equal access. Despite these efforts, two weeks ago, the US Commerce Department added Huawei to their “Entity List.” This decision threatens to harm our customers in over 170 countries, including more than three billion consumers who use Huawei products and services around the world. Connectivity is a basic human right, and the US government is putting their rights at risk. Especially people in underdeveloped countries, where there is a large digital divide. In addition, by preventing American companies from doing business with Huawei, the government will directly harm more than 1,200 US companies. This will affect tens of thousands of American jobs. It’s unfortunate that the US government is using so much time, resources, and political capital to attack a private company.’

Taken from Huawei.com.

The blacklisting of Huawei comes during a time of high political and economic tension as China and the United States go head to head in an ongoing trade war that has seen a barrage of tariffs on billions of dollars’ worth of both Chinese and American imports. Huawei has been offered a 90-day respite from the trade blacklist to minimize disruptions whilst it continues to deny any connection with the Chinese government and insists that the Huawei ban is a scapegoat for the Trump administration to cripple the company’s business and global influence as the race to 5G domination takes shape.

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