As the U.S.-China trade war rages on, both countries are looking at ways to hurt the other to an even greater extent. And China seems to have identified a market that it could use against America — rare earth metals. China is the world’s largest producer of these metals, accounting for almost 90 percent of worldwide production. The U.S. procures 80 percent of its rare earth metal supply from China.
Speculation about China restricting the supply of rare earth metals was strengthened after President Xi and Vice Premier Liu He recently made a visit to a rare earth metal factory in the eastern region of China. In the state-run People’s Daily, the National Development and Reform Commission (NDRC) indicated that rare earth metals could soon be weaponized by Beijing in the trade war.
“Do you suggest that rare earths will become a part of China’s countermeasures against the U.S.’s unwarranted pressure? What I can tell you is that if someone wants to use our rare earths to manufacture products and use them to curb China’s development, then the people of the revolutionary soviet base and all the Chinese people will not be happy,” it stated (Business Insider).
However, market experts are of the opinion that although China may threaten to restrict the supply of rare earth metals to the U.S., it won’t actually go ahead with the plan. This is because such a move would end up hurting the Chinese economy in the long run. Rare earth metals are a group of 17 elements used in things like smartphones, fighter jets, batteries, electric cars, and so on. Almost 80 percent of U.S. demand for processed rare earth metals is just for two elements — cerium and lanthanum. Both these elements are oversupplied in global markets.
Preventing the sale of rare earth metals to the U.S. will definitely cause a short-term problem for American businesses, as they would have to secure new supplies, rearrange logistics, deal with product delays, and so on. But eventually, America will easily be able to procure these metals from countries like Malaysia and Japan. Once such a supply network is set, it is the Chinese manufacturers of rare earth metals that will experience a steep decline in demand. Obviously, Beijing wouldn’t want this to happen.
“We have a hard time seeing how China could slap rare earth restrictions on consumer goods — goods that are produced inside China and are increasingly consumed globally — and not shoot itself in the economic foot in the process,” John LaForge, head of real asset strategy at Wells Fargo Investment Institute, said in a statement (CNBC).
The U.S. government is reportedly taking measures to ensure that the supply of rare earth metals to American businesses is not disrupted. “These critical minerals are often overlooked, but modern life without them would be impossible… the federal government will take unprecedented action to ensure that the United States will not be cut off from these vital materials,” Wilbur Ross, Commerce Secretary, said in a statement (Los Angeles Times).
The U.S. has almost 1.4 million metric tons of rare earth reserves. Production and refining of these elements attracts little investment since the Chinese supply them at much cheaper rates. But with the threat of a supply restriction from China looming, the U.S. government might start implementing policies to promote the domestic rare earth industry so that future demand for these metals can be met locally rather than being dependent on China.