China’s rare earth supplies is its trump card

The United States might have gone after Chinese telecommunications giant Huawei as the trade dispute with China intensifies, but China has a trick up its sleeve — its rare earth supplies.

Ad What are rare earths?

Rare earths are substances used in both consumer and high-tech devices, such as rechargeable batteries, iPhones, computers car motors, military jet engines, and tanks.

Unlike what its name suggests, rare earths are plentiful in quantity, but are costly and difficult to process and mine cleanly.

China produces over 95 percent of the world’s rare earths, according to AFP.

In addition, it holds 37 percent of earths reserves that are international.

The U.S. relies on China for 80 percent of its rare earth imports.

Washington has imposed US$250 billion of tariffs on Chinese products.

But it has yet to impose tariffs on rare earth imports from China.

Based on James Kennedy, president of ThREE Consulting, if China chooses to embargo these substances, it might shut down every aircraft, computer, smartphone and car assembly line out China”.

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Chinese President Xi Jinping seen a rare earths hub in Jiangxi province, China, on Monday, May 20.

Image via Xinhua

He was accompanied by Vice Premier Liu He, the point person who led the Chinese delegation in trade talks with Washington.

Xi’s visit has sparked speculation that China plans to utilize the rare earths material for a weapon in the trade dispute and as retaliation against the US’ newest round of tariffs on Chinese products, sending stocks soaring for rare earths-related Chinese firms.

Not so fast

But analysts say the importance of the trip lies than anything else.

Ryan Castilloux, managing director of Adamas Intelligence, a consultancy that tracks the rare earths market, told Reuters that Xi’s trip is supposed to indicate to the U.S. that China understands its “vulnerabilities”.

Unlikely China will pull plug

China is not likely to cut off supplies to the U.S. — or some other nation — just yet.

This is because doing so might lead that China doesn’t wish to see.

Li Mingjiang, an Associate Professor in Singapore’s Rajaratnam School of International Studies (RSIS), told AFP that Xi’s trip to the rare earths factory did not happen by chance, and it means that policy circles in China are thinking of a ban on rare earth exports as a policy weapon against the U.S.

But such a ban might be found from the U.S. as a “significant escalation of the trade war”.

Unlike the ban on Huawei from the U.S., which is especially geared towards businesses, a ban on rare earth exports by China might be regarded as targeting an entire country.

And that might not be something that Beijing wants.

Furthermore, while China is the world’s leading manufacturer of rare earths, it is not the only supplier.

Based on Reuters, rare earths are also mined in India, South Africa, Canada, Australia, Estonia, Malaysia and Brazil, although few alternative suppliers would be able to compete with China.

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Best image via Xinhua

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