China's Grip on Rare Earths in Spotlight as Trump Ducks Tariffs

(Bloomberg) -- The trade war has thrown China’s grip on the rare earths market into sharp relief once again, after Beijing levied duties on America’s only producer but escaped similar treatment from the Trump administration.

China’s 25% tariff on commodity imports includes the elements mined by MP Materials -- once the world’s biggest producer of rare earths. It exports 3,000 to 4,000 tons of concentrates a month to the Asian nation from its Mountain Pass operation in California, including the neodymium and praseodymium used in the motors of electric vehicles.

At the same time, the U.S. has excluded rare earths, along with pharmaceuticals, some medical goods and other critical minerals, from its own list of prospective tariffs on roughly $300 billion worth of Chinese goods to be targeted in the next wave of measures. It’s the second time the U.S. has ducked levies on the elements that are also used in electronics and military hardware.

“It is accurate to call this a targeted, unilateral tariff on the only U.S. rare earths producer,” said James Litinsky, chief executive officer of JHL Capital Group LLC, the majority owner of Mountain Pass. “We are in the process of becoming a self-sufficient, global rare earths producer -- we just want a level playing field to compete as a low cost producer.”

If Beijing is signaling that MP’s growing prominence has been noted, Washington would be loath to reciprocate given the strategic importance of the materials. There’s also China’s past form in rattling rare earths markets to make a political point -- for example, when it blocked exports to Japan after a maritime dispute in 2010.

The nation’s stranglehold on supply is so strong that the U.S. joined with other nations earlier this decade in a World Trade Organization case to force China to export more after prices spiked amid a global shortage. The WTO ruled in favor of America, while prices eventually slumped as manufacturers turned to alternatives.

In December 2017, President Trump signed an executive order to reduce the country’s dependence on external sources of critical minerals, including rare-earths, which was aimed at reducing U.S. vulnerability to supply disruptions.

To contact the reporters on this story: Jason Rogers in Tokyo at jrogers73@bloomberg.net;Joe Deaux in New York at jdeaux@bloomberg.net

To contact the editors responsible for this story: Alexander Kwiatkowski at akwiatkowsk2@bloomberg.net, Jason Rogers, Jake Lloyd-Smith

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