The rare earths, “strategic weapon” of Beijing in the trade war

Simple visit, but fraught with symbols. By inspecting a rare earth processing plant in the middle of a trade war with Washington, the Chinese president has subtly left a threat: block the exports of these metals, which the United States is dependent on.
The tariff war is now being combined with a technological clash centered on Huawei, the Chinese giant of smart phones, threatened in its very existence by an embargo on the American microchips.

But if Beijing depends on Uncle Sam’s technology, the United States – like the rest of the world – is also in a state of dependence on China.

The Asian giant produces more than 90% of rare earths on the planet, a set of 17 metals essential to advanced technologies and found in phones, plasma screens, electric vehicles, but also in weapons.

Behind President Xi Jinping’s move, massively relayed Monday by the official media, there was a message: “China has a way of pressure” against the United States, say analysts firm Trivium China.

“Rare earths are an important strategic resource,” Xi said, according to reports by the official China News Agency on Wednesday.

“It is only in possession of an independent technology (that we) can remain invincible,” he added, seeming to make the connection with the Huawei case.

The show of strength of the Chinese president “is not the result of chance,” confirms AFP Sinologist Li Mingjiang, S. Rajaratnam School of International Studies in Singapore.

“It is clear that right now, within the Chinese power, we are considering the possibility of using the ban on rare earth exports as a political weapon against the United States,” he adds. “This could be seen as a major escalation” by Washington.

“Oil on the fire”

Contrary to what their name suggests, rare earths are relatively abundant, but their electromagnetic properties – particularly sought after in the industry – make them “strategic metals”.

China has a pressure lever, a “strategic weapon”, according to Cyclope, an annual report on commodities.

And Beijing does not hesitate to use it. In 2010, in retaliation for a territorial dispute, he abruptly halted his rare earth exports to Japan.

The high-tech companies in the archipelago, which depended heavily on the Chinese neighbor for their supplies, had been hit hard.

To protect its resources threatened with depletion, China has also introduced export quotas. The United States, the European Union and Japan brought the case before the World Trade Organization (WTO), which ruled in favor in 2015.

But production quotas, imposed in the name of ecology, because the extraction of these metals is particularly polluting, are still in force.

“It can not be excluded that China is putting the same kind of pressure on the United States by citing environmental problems,” said Kokichiro Mio, China expert at the NLI research institute in Japan.

“A threat” that would not necessarily be followed by effect, according to him, because it is unlikely that the Chinese “want to put oil on the fire.”

A growing appetite

From robotics to computers to aeronautics to medical lasers, a rare earth embargo “would affect a number of strategic industries” in the United States, says analyst David Lennox of Fat Prophets.

The impact would be “not immediate”, but would be felt over time, because “there is no real substitute for rare earths,” he told AFP.

“China does not want to enter into a frontal conflict with the United States,” but the rare earths are used to put “psychological pressure,” concedes political analyst Chen Daoyin, since Shanghai.

Not content with concentrating production worldwide, Beijing has launched in recent years many rare earth projects outside China.

This strategy is embodied by the Shenghe group, which has been operating in joint venture since the beginning of the year the Kvanefjeld field in Greenland, considered the second largest in the world, recalls the Cyclope report.

This group is also part of the consortium that has allowed the resumption of operation of the Mountain Pass mine in the United States, much of which is for export … to China.

Sign of the US vulnerability, rare earths, like drugs, should be excluded from the next tariff increases affecting almost all Chinese products in the United States.

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