China uses rare earths in the trade war against Trump

China uses rare earths in the trade war against Trump

Less than a year after the beginning of the first trade war by Donald Trump with China, Chinese leader Xi Jinping visited an inconspicuous factory in all of the country, an industrial city in the southeast of the country, and found: "Rare earths are an important strategic resource."

The central importance of less common earth

Almost six years later, China's dominance in the supply chain for rare earths, as one of the most powerful tools in the new trade war with the US President. These minerals that are used to supply energy such as iPhones and electric vehicles play a crucial role in the advanced technologies of the future. In contrast to tariffs, Trump has little scope for retaliation in this area.

The global market position of Chinas

rare earths are a group of 17 elements that occur more often than gold and in many countries, including the United States. However, your extraction and processing is difficult, expensive and environmentally harmful. Over the decades, China has established itself as an indispensable provider of this edited metals. According to the international energy agency, 61 % of global extraction is less common in China, whereby the country controls 92 % of global processing.

export controls and their effects

on April 4, after years of encrypted warnings, the Chinese government imposed export restrictions on seven species of rare earths as part of its retaliation against Trump's initial “counter -tariffs” of 34 % to Chinese goods. These new regulations require the government of all companies to export the affected minerals and the associated products such as magnets.

magnets from rare earths enable more efficient motors and generators that are used in smartphones, auto and jet engines as well as MRI devices. They are also essential components of high technology weapons, from F-35-stealth fighting aircraft to nuclear-driven submarines.

The reaction of the US industry

Justin Wolfers, professor of economy and public policy at the University of Michigan, commented: "It is China that shows how it can practice incredible economic power through strategic and selective action and the American industry meets where it hurts." Since the first Trump administration, the US industry has been trying to build its own supply chain for rare earths. Three US companies in the rare earth area reported CNN that they expand their production capacities and obtain materials from US partners.

interruption of deliveries

At the moment, the effects of export controls from Beijing are already noticeable. John Ormerod, founder of the advisory company JOC for rare earths, said that since the new regulations came into force, deliveries of less frequent earths to at least five American and European companies have been stopped in China. "They were surprised and there is a lot of confusion on their side," said Ormerod. Joshua Ballard, CEO of the USA Rare Earth, also pointed out that export controls focus on "severe" rare earths that are controlled by 98 % by China.

a long way to independence

The history of China in the field of rare earths began in the 1950s, but the real development of the industry did not begin until the end of the 1970s. During this time, China combined low labor costs with relatively lax environmental standards and the takeover of foreign technologies. "A lot of what they took over was developed here in the USA or Japan and Europe," said Stan Trout, founder of the advisory company for rare earth spontaneous materials.

China's strategy and global challenges

China's control over the industry has been reinforced over the years, and while labor costs have risen, the country has willingly invested in technology and research. The export controls are not the first time that China uses its dominance in the industry. In a variety of cases, including a dispute with Japan in 2010, China has stopped deliveries from rare earths. The latest export controls have once again significantly influenced the trade landscape.

The opportunities for the USA

experts agree that China's export controls have severely restricted the alternatives for the rest of the world. Nevertheless, the US government is working on closing these gaps. Since 2020, the US Department of Defense has provided more than $ 439 million to establish local supply chains for rare earths. The goal is to develop a sustainable supply chain by 2027 that can support all the defense requirements of the United States.

Some American companies see China's export controls as an opportunity to accelerate their own production and build a stronger supply chain outside of China. Nicholas Myers, CEO of Phoenix Tailings, explained that his company developed technologies to process rare earth with "zero waste, zero emissions".

USA Rare Earth builds a magnetic factory in Texas to produce 5,000 tons of less frequent earths annually, and has the occurrence of so-called “heavier” rarer in the West texas that are on the last export control list of China.

After years of wrestling, American companies could finally get the impetus that they need to rebuild the decisive industry for gaining and processing rare materials that is necessary for the technological race with China.

reports contributed by CNNS Yong Xiong and Isaac Yee.