US need for rare earths an ace in Beijing’s hand
Published: May 16, 2019 10:14 PM
Shares of rare-earth producers on Thursday led the stock markets in the Chinese mainland higher after the US decided not to increase tariffs on rare earths and other critical minerals from China.

Why did the US threaten to raise tariffs on "essentially all remaining imports from China" while sparing rare earths? The answer is simple: Without a reliable domestic supply, the US must rely on rare earths from China to supply industries of strategic importance.

Rare earths are vital to many modern technologies and a wide array of weapon systems used by the US military, but China controls the vast majority of the world's supply. Some statistics show China currently produces about 95 percent of the world's rare earths. It will take many years if the US wants to rebuild its rare-earth industry and increase its domestic supply to reduce its dependence on China's minerals.

That's long enough for China to win a trade war against the US, during which time China's monopoly on the production of rare earths will help Beijing control the lifeblood of the US high-technology sector.

It will test China's wisdom in deciding how to fully utilize its advantage in rare earths. Jin Canrong, an expert on US studies at the Renmin University of China, said the "ace" in China's hand is a complete ban on exports of rare earths to the US. However, this is not the only way to make the US economy feel pain.

China can raise the price of rare earths exported to the US in response to higher tariffs on Chinese products. The US decision to omit rare earths from the China tariff list shows how much the country depends on these minerals from China. This can give Chinese rare-earth producers the confidence to raise prices. In the short term, US users won't be able to find alternatives, so they have to accept higher prices.

The trade war is prompting China to rethink its rare-earth strategy. The country has various tools in hand, such as cutting the number of rare-earth mining licenses, raising market access standards for miners, reducing exports of primary rare-earth products, and restricting outbound and inbound investment in related industries.

China will likely be wary of a total export ban to avoid escalating tension with the US, but it won't ignore the opportunity to safeguard and maximize its interests. 

The author is a reporter with the Global Times.
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