A Game-Changer in Trade War: China's New Rules on Rare Earth Exports
In an unexpected move that has shaken the international trade scene, China recently announced comprehensive new restrictions on its rare earth exports. This move not only strengthens China's control over the global supply of these critical minerals but also serves as an alarming reminder to the US of China's significant influence in the ongoing trade war.
Rare Earths: A Crucial Role in Modern Technology
Rare earth minerals have a critical role in the manufacturing of a vast range of products, from everyday items like smartphones to high-tech military equipment. With China's near-total control over the processing of these rare earths, any shift in their export policies can have far-reaching implications.
The new regulations demand that foreign companies must secure the Chinese government's approval to export any products that contain even a small percentage of rare earths. Additionally, these companies are also required to disclose the intended use of these products.
The US Response
In retaliation to this move, the US President has threatened to double the tariff on Chinese goods and set export controls on key software. The US Treasury Secretary has expressed strong opposition, proclaiming that the US and the rest of the world will not stand for such measures that pose a threat to global supply chains and the industrial base.
However, China has clarified that the fears surrounding these new restrictions are unwarranted, stating that applications for export licenses will be approved as long as they comply with the rules and are for civilian use.
Trade War Tensions Escalate
The announcement of these new regulations has reignited the tensions in the trade war, putting an end to a period of relative calm that followed a truce negotiated by top officials from the US and China. This development could change the dynamics of the upcoming meeting between the US President and China's President, as experts suggest that these restrictions could give China an advantage.
Impact on American Supply Chains
These new controls could potentially disrupt American supply chains, according to an international business lecturer. He added that this change in timing has disrupted the negotiation timeline that the US had planned.
Rare earth minerals are integral to the production of various technologies, including solar panels, electric cars, and military equipment. For instance, an estimated 400kg of rare earths are required for the stealth coatings, motors, radars, and other components of a single F-35 fighter jet.
China's exports of rare earths account for approximately 70% of the global supply of metals used in the motors of electric vehicles. This dominance over the global rare earth processing capacity is a result of China's considerable investment in research and development in this field, which has propelled them years ahead of their competitors.
Alternative Sources of Rare Earths
While the US and other countries are investing heavily in developing alternative sources for rare earths, they are still far from reaching their goal. Despite having large deposits of rare earths, countries like Australia face challenges due to underdeveloped production infrastructure, making processing relatively expensive.
Even if the US and its allies were to prioritize the processing of rare earths, it would take them at least five years to catch up with China.
China's Economy Unlikely to Suffer
Despite a more than 30% decrease in the export of these critical minerals compared to the previous year, analysts believe that China's economy is unlikely to be negatively impacted. This is because rare earths make up a very small part of China's annual economy. However, their strategic value is immense, providing Beijing with significant leverage in negotiations with the US.
While there have been accusations of betrayal, there is still hope for negotiations. Both sides have expressed a willingness to engage in effective communication to resolve differences and promote stable, healthy, and sustainable development of their relationship.
Setting the Stage for Trade Talks
China's recent actions can be seen as strategic preparation for upcoming trade talks with the US. By restricting rare earth exports, Beijing has found an effective tool to pressure Washington for a favorable deal.