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

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.


Why the UN is struggling to function

Antonio Guterres, UN secretary-general, called the budget shortfall “the worst cash crisis facing the UN in nearly a decade,” jeopardizing, among other things, peacekeeping efforts and the management of the UN’s New York headquarters. (Ray Hanania)
Updated 16 October 2019

Why the UN is struggling to function

  • World body facing 'the worst cash crisis' in nearly a decade due to mounting arrears
  • Crisis is marked by lack of cash to pay staff and vendors or to fund critical programs

NEW YORK CITY: The UN is facing its worst liquidity shortfall in 74 years of operation with a deficit of $1.385 billion, which is making it difficult for the world body to pay staff and vendors or fund missions.
The crisis has forced Antonio Guterres, the UN secretary-general, to begin cutbacks in all operations.
Warning on Oct. 8 that the problems are at a “tipping point,” he called it “the worst cash crisis facing the UN in nearly a decade,” jeopardizing peacekeeping efforts in Yemen, Myanmar and the management of the UN’s New York headquarters, offices in Geneva, Vienna and Nairobi, and investigative commissions in Bangkok, Addis Ababa, Santiago and Beirut.
A UN budget review presented this week showed that the crisis is being driven by the lack of cash to pay staff and vendors or to fund critical programs, and outlined spending cuts that will begin immediately pending a resolution of the situation.
“The cash deficits occur earlier in the year, linger longer and run deeper,” said Catherine Pollard, UN under-secretary-general for management strategy, policy and compliance.
“For the second successive year, we have exhausted all regular budget liquidity reserves, despite several measures we had taken to reduce expenditures to align them with available liquidity.”
Chandramouli Ramanathan, UN's controller, detailed the debt in a presentation with Pollard on Oct. 11 that identified $1.385 billion in debts, more than half of the UN’s 2019 annual budget of $2.85 billion.
Ramanathan said that only $1.99 billion had been collected this year, including past year arrears.
“If the trend continues … you will pretty much see that at some point we are running out of liquidity so often — everything depends on the liquidity if the liquidity runs down, we have to prioritize the payment,” he said.
“It will come to the point where you will not have enough staff or not have enough to pay the vendors.”
Ramanathan said that 75 percent of the UN’s budget is for employee and building costs. The remainder includes air charters, fuel, rations, IT support and political missions, which he said are all in jeopardy.
This does not include the costs of peacekeeping missions, nearly $8 billion for 2019, but which are nearly $3.7 billion in arrears.
A slew of operating spending cuts at the UN began on Oct. 14, ranging from no new hirings or filling of vacant positions to switching off heating and airconditioning.
Ramanathan said that these were emergency steps but warned failure to address the “liquidity crisis” would result in other more serious cutbacks including funding of operations, missions and more.

UN OPERATING SPENDING CUTS

• No new hirings or filling of vacant positions

• Reducing operating hours of UN facilities including the New York City headquarters

• Suspending release of new documents, studies and translation of documents

• Curtailing travel of UN officials, meetings or publicly scheduled receptions

• Cutting back operations at the UN headquarters and its worldwide centers, including turning off the use of electricity for certain building operations such as escalators, and shutting down the UN’s fountains

• Heating and air conditioning to be turned off at 6 p.m. each day and not turned on until 8 a.m. at UN buildings

“We are trying to cut back on non-salaried costs, operating hours to meet obligations and to vendors,” he said.
Ramanathan said that the UN was prohibited by its charter from borrowing money. He acknowledged that traditionally member countries were late in paying, usually until the last half of the year or last quarter, but the late payments had become “later and later” each year.
“The US is the largest contributor and they have a large outstanding amount … the US has a large amount outstanding,” Ramanathan said, noting that the UN does single out and list specific debts or debtors.
“We are in active engagement with all the states that owe large amounts.”

Ramanathan identified seven member nations that had failed to pay their memberships fully and accounted for 97 percent of the debt owed: the US ($1.06 billion), Brazil ($143 million), Argentina ($51.5 million), Mexico ($36 million), Iran ($26.9 million), Israel ($17.7 million) and Venezuela ($17.2 million).
He said that a total of 65 other countries were in arrears for their annual dues, based on country size and per capita income, but that represented less than 3 percent of the operating budget shortfall. Only 128 members were fully paid up for this year.
According to Ramanathan, the US owes its annual membership dues of $674 million for 2019, and $381 million for previous years.
UN officials declined to comment on reports that Guterres is seeking to address the unpaid US monies in a meeting with US President Donald Trump, who has repeatedly criticized the UN and the US financial obligations.
But an independent report by UN Dispatch, which is funded by the UN Foundation, reported on Dec. 6, 2016, that the UN’s headquarters generated $3.69 billion in benefits to New York City’s economy through jobs, commerce, hotels and retail spending by delegates and their staff.
One example of the costs includes accommodating the more than 1,500 journalists, delegates and support staff at the opening of the UN’s 74th General Assembly in New York City on Sept. 23.

The cash deficits occur earlier in the year, linger longer and run deeper.

Catherine Pollard, UN under-secretary-general for management strategy, policy and compliance

The UN erected a huge outdoor media tent in its grounds to accommodate journalists, providing access to the internet, electrical outlets, video and audio feeds, tables and work stations.
But these journalists, staff and delegates also brought with them revenue for the host city — filling hotels and restaurants, and generating profits for retailers, cabs and other businesses.
Despite the financial benefits New York City reaps from the UN headquarters presence, and the power the US wields at the UN, Trump brushed aside reports of the budget crisis or his nation’s failure to pay its share of the UN costs during his address on Sept. 24 to the UN General Assembly.
And a week later, Trump tweeted in response to UN officials’ budget concerns: “So make all Member Countries pay, not just the United States!”
The UN could suspend the voting of any nation that fails to pay its dues under Article 19 of the UN Charter, which states: “A Member of the United Nations which is in arrears in the payment of its financial contributions to the Organization shall have no vote in the General Assembly if the amount of its arrears equals or exceeds the amount of the contributions due from it for the preceding two full years. The General Assembly may, nevertheless, permit such a Member to vote if it is satisfied that the failure to pay is due to conditions beyond the control of the Member.” (Article 19 of the Charter of the United Nations)
A UN staff member said that it was unlikely that the UN would implement the rule against the US and that they fully expected the US “to pay at least part of what it owes” before the end of the year.
The UN was created in 1945 with the goal of ending human-rights abuses.
The power of the UN rests with the 15-member Security Council, which the US is a member of and controls through its veto to block any policies or resolutions it opposes.
The UN General Assembly includes 193 nations, serving as a platform for advocacy and action.