Beijing’s Trump Card — China May Halt Exports of Rare-Earth Materials to the U.S.

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Following the Trump administration’s blacklisting of Huawei Technologies Co., President Xi and China could now consider halting the exports of rare-earth materials to the United States. China is the dominant producer of many rare-earth raw materials, and the cutoff of these resources could have a serious adverse impact on many industries in the United States including autos, renewable energy, defense and technology more broadly. China supplies the United States with 80 percent of all of its all rare-earth imports.

After state media broached the idea last week, the possibility of China leveraging their dominance in the rare-earth markets was heightened by President Xi’s visit to a rare-earth industrial center in Ganzhou, Jiangxi province. Xi was accompanied by Vice-Premier Liu He, who has been leading trade negotiations with the United States. This would not be the first time China has used their stranglehold over the rare-earth industry to increase diplomatic pressure. In 2010, during a diplomatic dispute with Japan over the Diaoyu islands, China halted shipments of rare-earth to Japan altogether. Japan’s technology industry heavily relies on these resources, and at the time, China accounted for 97% of the global production. Following this incident in 2010, the international community realized that they needed to diversify the sources of rare-earths to deter China’s monopolistic control of the market. Even so, if China were to restrict the export of rare-earths to the United States, the American technology industry would suffer.

SEE ALSO: The National Development & Reform Commission Makes a Statement about Rare Earths

For example, China has a dominant market position in terms of electric battery materials. Chinese firms, Tianqi Lithium Corp. and Ganfeng Lithium Co., control nearly half of the world’s lithium production. In addition, China owns mines in the Democratic Republic of Congo as part of an agreement with Glencore Plc, resulting in the Chinese owned production of roughly 80 percent of the world’s cobalt. Furthermore, battery-grade nickel, prominent in electric car batteries is being dominated by Chinese firms via many projects in Indonesia.

In addition to lithium and cobalt, oil refiners in the United states use other rare-earth resources as catalysts to create jet fuel and gasoline from crude oil. Magnets require rare-earth materials as well, and are used in a variety of technologies including ear buds, wind turbines and electric cars. Many analysts are raising alarm that such measures, if taken by Beijing would be the most drastic so far in the trade war, provoking further concerns about global national security.

This potential embargo on rare-earth materials is an example of how today’s modern economy relies on complex global supply chains that are vulnerable to rifts in diplomatic relations. Henry Farrell, a political scientist at George Washington University has called this phenomenon “weaponized interdependence”. Raw materials are so often imported, and production so frequently outsourced that any disturbances in the supply chain can cause significant upheaval in the economic status quo. For example, although President Trump blacklisted Huawei, the Chinese firm spends an estimated $11 billion per year on goods from U.S. companies like Qualcomm, Broadcom and Google who provide crucial components to Huawei. The economic ripple effect of disruptions to supply chains will impact all nations, and decrease the overall effectiveness and efficiency of the global economy, with both sides experiencing hardships until a resolution can be reached.

In efforts to reduce the economic interdependence on China for rare-earth resources, the United States Congress introduced a bill this month to help advance the development of domestic mining for rare-earth minerals in an attempt to strengthen a strategic weakness in the U.S. economy. Given the dearth of domestic rare-earth production, potential alternative suppliers to China could be Australia, Estonia, Myanmar, India, Brazil or Vietnam.

SEE ALSO: ALL YOU NEED TO KNOW: HUAWEI U.S. TRADE WAR

The U.S. blacklisting of Huawei has spurred the Chinese firm to develop its own components, while the threat of imposing rare-earth embargoes on the U.S. has initiated an interest in greater domestic production or alternative suppliers. This is a clear example of the anticipated “decoupling” between the world’s two largest economies that for so long have been bound together by mutual interdependence.

Featured photo credit to nytimes.com

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