Rare earths: The latest weapon in the US-China trade war

China has been accused of using its rare earth leverage for political and economic reasons in the past (Shutterstock)
Updated 29 May 2019
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Rare earths: The latest weapon in the US-China trade war

  • China could shut down nearly every automobile, computer, smartphone and aircraft assembly line outside of China if they chose to embargo these materials
  • Rare earths “are abundant across the globe,” said OANDA’s Halley

BEIJING: They are used in everything from lightbulbs to guided missiles, but with China controlling 95 percent of the world’s supply of rare earth metals, they are also a potentially powerful weapon in Beijing’s trade war with Washington.
Here are some key questions and answers on the prized elements.
The bedrock of electrical manufacturing, rare earths are 17 elements that serve as key components in devices ranging from hi-tech smartphones and cameras to flat-screen televisions and computers.
China dominates the global supply chain — and Washington relies heavily on the Asian superpower to access the metals. So much so that the commodities have not been subject to the tariff increases imposed by Donald Trump’s administration on Chinese goods.
But Chinese state media is now suggesting that rare earth exports to the US could be cut in retaliation for American measures, sparking fear among manufacturers.
Simply put, rare earths give Beijing tremendous political and economic leverage in its spat with the United States.
The US this month threatened to cut supplies of US technology to Chinese telecom giant Huawei, citing security concerns and intensifying a trade spat that has seen both countries slap tit-for-tat tariffs on each other.
While Beijing has so far only issued cryptic warnings to suggest that rare earths could be its next weapon, “as a retaliatory trade measure, it’s a no-brainer on the surface,” according to OANDA senior market analyst Jeffrey Halley.
If Beijing chooses to make good on these threats, the impact on US manufacturers could be disastrous.
“China could shut down nearly every automobile, computer, smartphone and aircraft assembly line outside of China if they chose to embargo these materials,” James Kennedy, president of ThREE Consulting, wrote last week in National Defense, a US industry publication.
China has been accused of using its rare earth leverage for political and economic reasons in the past.
In 2014, the World Trade Organization ruled the country had violated global trade rules by restricting exports of the metals, claiming environmental damage from mining and the need to conserve supplies.
The US, European Union and Japan had appealed to the WTO, accusing Beijing of curbing exports to give domestic tech firms an edge over foreign rivals.
The WTO panel ruled that the quotas were “designed to achieve industrial policy goals rather than conservation.”
Four years earlier, Japanese industry sources said China temporarily cut off exports to Japan in 2010 when a territorial row flared between the Asian rivals, charges that Beijing denied.
Analysts say Beijing may not pull the trigger just yet, possibly because any restriction could spark a chase for alternative sources of rare earths.
Despite its dominance over supply, China is not the only country with sizeable reserves of the metals.
The United States Geological Survey estimated last year there were 120 million tons of deposits worldwide including 44 million in China and 22 million in both Brazil and Vietnam.
For much of the last century, the US dominated rare earths production.
But mining the metals creates huge amounts of toxic waste and in 2003 California’s Mountain Pass mine — then the sole US miner of rare earths — ceased production, following an environmental disaster a few years earlier.
China filled the void — helped in no small part by lax regulations and lower costs — and grew quickly to become the leading producer of the metals.
Rare earths “are abundant across the globe,” said OANDA’s Halley, but added that many countries are turned off by the heavy costs — financial and environmental — incurred in the production process.
“Much like everyone would like a new airport nearby, just not next door to them... the world has reaped what it has sown by handing the keys to China in this respect,” he said.


No-deal Brexit looms as race for new British PM wraps up

Updated 17 July 2019
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No-deal Brexit looms as race for new British PM wraps up

  • Many lawmakers, business community fear dire economic outcome
  • A majority of lawmakers in the House of Commons are opposed to a no-deal Brexit

LONDON: The battle to become Britain's next prime minister enters the home straight on Wednesday with both candidates hardening their positions on Brexit, putting the future government on a collision course with Brussels.
Ex-London Mayor Boris Johnson, the favourite to replace Theresa May, and Foreign Secretary Jeremy Hunt, are now both referring to Britain's departure with no overall deal in place as a realistic prospect.
The business community and many lawmakers fear dire economic consequences from a no-deal Brexit, which would lead to immediate trade tariffs for some sectors including the automotive industry.
Johnson and Hunt are taking part in a final question-and-answer session later on Wednesday before the result of the vote by Conservative Party members is announced next Tuesday.
The new party leader will be confirmed as prime minister by Queen Elizabeth II on the following day.
Britain has twice delayed its scheduled departure from the European Union after 46 years of membership as May tried and failed to get her deal with Brussels through parliament.
The two candidates vying to replace her have vowed to scrap a "backstop" provision in the agreement that Brussels insisted upon to keep the Irish border open.
Their latest attacks on the measure during a debate on Monday prompted a plunge in the value of the British pound.
The currency fell again Wednesday to its lowest level against the US dollar in over two years.
"The tougher stance from both Boris Johnson and Jeremy Hunt in terms of their rhetoric on Brexit is clearly weighing on the pound," said market analyst Neil Wilson.
"Make no mistake, this decline in the pound is down to traders pricing in a higher chance of a no-deal exit."
The backstop has proved a key stumbling block in the Brexit process.
The measure would keep open the post-Brexit border between British-ruled Northern Ireland and EU member the Republic of Ireland whatever the outcome of negotiations over the future relationship between London and Brussels.
Johnson announced early in his campaign that he would not sign up to it and would pursue a no-deal Brexit if required, leading his opponent to follow suit.
However, European leaders have been adamant that the backstop must remain a part of any divorce deal, raising the prospect of a no-deal Brexit.
German Defence Minister Ursula von der Leyen, who will become European Commission president in November, said the draft withdrawal agreement provided "certainty".
She also broached a possible further delay to Britain's departure, saying: "I stand ready for a further extension of the withdrawal date, should more time be required for a good reason."
Johnson has pledged that under his leadership, Britain will leave "do or die" on the current deadline of October 31.
A majority of lawmakers in the House of Commons are opposed to a no-deal Brexit, but attempts to pass legislation blocking the scenario have failed.
Reports this week suggested Johnson is considering plans to end the current session of parliament in early October, leaving MPs powerless.
Finance Minister Philip Hammond said Wednesday it was "terrifying" that some Brexit supporters thought that no deal would leave Britain better off.
And in a speech in London, May said the "best route" for Britain was to leave with a deal.
Delivering her last major address, she railed against the trend towards "absolutism" in Britain and abroad, and urged her successor to compromise.
"Whatever path we take must be sustainable for the long term, so that delivering Brexit brings our country back together. That has to mean some kind of compromise," she said.