Markets

China threatens to limit rare earths exports in warning over trade war

China threatens to limit rare earths exports in warning over trade war

China, which has roughly 40 percent of the global reserves of rare earths, accounted for nearly 80 percent of US imports of the elements past year, according to Bank of America Merrill Lynch. China dominates global supply chains of rare earths, a group of 17 elements used in production in a huge number of sectors, including oil refining, high-tech products ranging from flat-screen TVs to lasers and military equipment.

"Based on what I know, China is seriously considering restricting rare earth exports to the U.S. China may also take other countermeasures in the future".

President Xi Jinping's visit to a rare earths plant last week had sparked speculation that China would use its dominant position as an exporter of rare earths to the States as leverage in President Trump's escalating trade war.

"Waging a trade war against China, the United States risks losing the supply of materials that are vital to sustaining its technological strength", began a commentary published Wednesday in the Communist newspaper People's Daily.

"If anyone wants to use the products made from our rare earth exports to try to counter China's development, then the people from the southern Jiangxi Communist revolutionary base would not be happy, and the people of China will not be happy", the NDRC representative said.

The U.S. shouldn't underestimate China's ability to fight the trade war, the People's Daily said in an editorial Wednesday that used some historically significant language on the weight of China's intent.

The nation's producers have rallied hard in recent weeks on the view that rare earths could be an ace in the trade war. Wind turbines and solar panels also depend on rare earth metal imports from China.

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The report said China's advantages were already slipping away in 2010 due to normal market behaviour, including increases in non-Chinese production and processing capacity, and innovations that have contributed to reducing demand for some rare earth elements.

America's rare earth mineral dependence is a long-standing issue. Cerium, the most abundant, is more common in the Earth's crust than copper.

"I would like to reiterate here that the production chains of China and the United States are closely linked and highly complementary", the representative added.

China only controls about 40% of the world's estimated rare earth mineral reserves, which means there's an opportunity for other countries to gain market share.

The visit followed a US clampdown on technology giant Huawei by President Donald Trump's administration earlier this month, and was interpreted by experts as a signal that the Chinese government is weighing restrictions on rare-earth exports.

The ambiguous comments by the spokesman underscored a heated debate in China over whether the country should resort to a tit-for-tat response against the U.S., particularly since there are limits to retaliatory tariffs China can assess on United States imports. According to a 2016 Government Accountability Office study, certain rare earth materials are "essential to the production, sustainment, and operation of US military equipment". That led some countries to search for alternatives - and a protest by Japan with the WTO, which ruled in 2014 that the restrictions on rare-earth exports were illegal. Hong Kong-listed China Rare Earth Holdings Ltd. spiked as much as 41 per cent and has doubled in value in May. After announcing it would increase tariffs on $60 billion worth of United States goods, China is exhausted as far as imports are concerned.


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