Rare Earth Minerals: China’s Tool to Win Trade Wars

The trade war between the U.S. and China has been going on for almost a year. The economy of both has been battered due to this ongoing economic confrontation. Throughout 2018, China’s economic growth was recorded at 6.6 percent. This is the lowest number in decades. In the first quarter of 2019, China was only able to record economic growth at 6.4 percent.

As for the U.S., although in the fourth quarter of last year its economy only grew at an anemic 2.6 percent, which is much slower than the previous quarter at 3.4 percent, in the first quarter of 2019, the U.S. managed to reverse the situation. The U.S. economy grew stronger than expected, at 3.2 percent.

Starting from the import duty tariff war on imported products, the confrontation developed into a national security issue. The Trump administration accuses the Chinese telecommunication giant Huawei of carrying out espionage for the Chinese government through the technology and software it sells to the U.S.

The U.S. is also seeking support from its allies to confront Huawei. This effort proved successful. A number of European countries have finally reviewed their projects with Huawei.

Today, the trade war between Beijing and Washington entered a new phase. The former is currently preparing to launch a counterattack to the latter.

Rare earth as a ‘weapon’

China reportedly would retaliate against the U.S. by limiting the exports of rare earth metals. This commodity is used by the U.S. as raw materials for the production of technological devices and military equipment.

Rare earth is a group of 17 chemical elements used in various consumer products, ranging from iPhones, electric vehicles to flat-screen televisions, guided missiles and the military.

The use of rare earth as a tool by China to avenge Washington in this trade war is very possible. With China controlling 95 percent of the world’s rare earth supplies, this will likely be a powerful ‘weapon’ in the trade war.

The U.S. is known to be very dependent on China when it comes to rare earth minerals so the commodity has not been subject to an increase in import duties by the Trump administration.

But Chinese state media suggested rare earth exports to the U.S. should be lowered in retaliation for U.S. actions to increase import duties. This has triggered fears among American electronic manufacturers.

Why does China have to use rare earth to retaliate against the U.S.? The answer is that the U.S. threatened to cut the supply of technology to Huawei with pretext of national security concerns.

Despite dominating supply, China is not the only country with large rare earth reserves. The U.S. Geological Survey estimates that last year there were 120 million tons of metal reserves worldwide including 44 million in China and 22 million in Brazil and Vietnam.

Although Brazil, Vietnam and even the U.S. have rare earth resources, in order to avoid environmental damage, these countries do not exploit them for economic purposes. Mining metal produces large amounts of toxic waste.

In 2003, the California Mountain Pass (which is the only rare earth miner in the U.S.) stopped production following an environmental disaster several years earlier.

China fills the gap with loose regulatory assistance and lower costs. The country has grown rapidly to become the world’s leading rare earth producer.

Beijing has so far only issued a faint warning that suggests that it will use rare earth as its weapon. If Beijing decides to do so, its impact on U.S. factories could be disastrous.

To use rare earth minerals as a weapon against the U.S., China needs to be careful. This is because China has been reported to the World Trade Organization by a number of countries for limiting rare earth metal exports.

At that time, the U.S., the European Union, and Japan accused China of limiting exports to give domestic technology companies an edge over foreign competition. In 2014, the WTO ruled that China had violated the rules of global trade by limiting rare earth metal exports.

Will rare earth minerals be the next ‘weapon’ of choice for China against the United States and by extension, the Trump administration? Beijing is fully aware that it has some leverage over the United States.