Why Rare Earths Could Give China a Trade War Cudgel

(Bloomberg) -- U.S. President Donald Trump’s threat to cut off the supply of chips and processors to Huawei Technologies Co. is hitting China’s biggest tech company where it hurts – its dependence on other nations for the semiconductors and software used in smartphones and networking gear. So when China’s President Xi Jinping showed up days later at a rare earths processing plant, many observers saw a message in the visit: the U.S. has its own tech vulnerabilities, too.

1. What are rare earths?

A group of 17 chemically related elements found in mineral form that have magnetic and optical properties useful for making electronics more efficient. Electric vehicle makers rely on them for lighter-weight battery and motor components. Neodymium and praseodymium combine to make powerful magnets used in aircraft, headphones and much more. Yttrium, a silvery metal, is used in cancer and rheumatoid arthritis drugs as well as color televisions and camera lenses. They’re also frequent components of everyday objects like light-emitting diodes, or LEDs, used to light up smartphones and stadium scoreboards.

2. How rare are they?

Not as rare as other precious metals such as gold or silver. But they’re usually so intermixed with other minerals as to make their extraction and refinement costly, particularly when the mining conforms to the environmental standards of developed countries.

3. Who controls them?

China and parts of Southeast Asia dominate both the mining and processing of rare earths. China accounted for 71% of the rare earths mined globally in 2018, according to the U.S. Geological Survey. Australia and the U.S. were distant runners up, together producing less than a third of China’s 120,000 metric tons. The U.S. relied on China for about four of every five tons of rare-earth imports between 2014 and 2017 and in 2018 purchased $160 million-worth, up 17% from a year earlier. Outside of China, the world’s other large reserves of rare earths can be found in Brazil, Vietnam and Russia. A slump in prices in recent years has made opening up new sources unappealing.

4. What role have rare earths played in the trade war?

Not much so far. Trump exempted U.S. imports of rare earths from the round of tariffs on Chinese goods announced in May, after including them in a previous round. China included rare earths in a batch of tariffs on American imports that it raised to 25% from 10% in retaliation. A California company called MP Materials, the only U.S. rare earths producer, sells much of its ore to China. The chief executive of its majority owner said “it is accurate to call this a targeted, unilateral tariff.”

5. What’s the message from China?

After Xi and his top trade negotiator, Vice Premier Liu He, visited a rare earths facility on May 20, analysts speculated that the strategic materials could be weaponized as trade tensions escalate. Then came a salvo of tough talk in Chinese media including the flagship People’s Daily on May 29, which included a rarely used, loaded phrase that means “Don’t say I didn’t warn you.”

6. Has this ever happened before?

Sort of. In 2010 Japanese officials charged that China had stopped exports to Japan during a maritime dispute. China denied there was any ban, which reportedly ended after a few weeks. But for 15 years, China imposed limits on rare-earth exports, citing a need to cut pollution and conserve supplies. Those quotas were scrapped in 2015, after the World Trade Organization determined that they violated trade rules.

The Reference Shelf

• A USGS report on rare earths.
• How to track rare earths on your Bloomberg terminal.
• Bloomberg News analyzes the rare earth tariffs and the impact on electric vehicle makers and American weaponry.
• An article by the Association for Computing Machinery on electronics and rare earths.
• Chemical & Engineering News describes the struggle to mine rare earths.
• Mining.com looks at “How the U.S. lost the plot on rare earths.”

To contact the reporter on this story: Justina Vasquez in New York at jvasquez57@bloomberg.net

To contact the editors responsible for this story: Luzi Ann Javier at ljavier@bloomberg.net, John O'Neil, Paul Geitner

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