China to shut rare earths exports to US but risks international isolation

It could also hurt China's reputation as a reliable supplier.

Belmont Lay | June 06, 2019, 05:24 PM

Chinese tit-for-tat action

The Chinese government indicated on Tuesday, June 4 it will take steps to restrict rare earth metal exports.

This is seen as a retaliatory move against the United States as a result of imposing tariffs on exports from China.

News of turning off the rare earths tap was reported by Nikkei Asian Review on June 5.

U.S. dependent on imported rare earths

China is a dominant rare earths supplier.

It produces 70 percent of the world's rare earths.

The U.S. relies on China for 80 percent of its imports of the metals and compounds.

Imports account for more than half of the annual consumption of 31 of 35 critical minerals listed by the U.S. Department of the Interior.

Rare earths are a critical component in electric cars, smartphones and even military equipment.

Who will suffer?

High-tech industries globally could be disrupted as a result of China's rare earths export control.

China wields a strategic advantage.

The U.S. also understands that its technological advantage hinges on continued access to the minerals mostly supplied by the Chinese.

President Xi Jinping called rare earths metals an "important strategic resource" in May 2019.

What is China's immediate next step?

Rare-earth experts in China have recommended greater controls on exports of the metals, according to the state-run Xinhua News Agency.

The recommendation calls for a centralised system to manage their mining and processing.

What can the U.S. do?

The U.S. needs to diversify sources domestically and enhance trade relationships with allies including Japan, the European Union and Australia.

The U.S. might also need to consider stockpiling and relaxing mining regulations at home.

The recognition that rare earths is a vital resource was underscored by Commerce Secretary Wilbur Ross.

He said in a statement that "modern life" without rare earths "would be impossible".

What is the US reaction to this move?

The U.S. Department of Commerce promised "unprecedented action" to reduce dependence on foreign sources of "critical minerals".

It is looking to boost domestic production.

Why is China also at risk?

But China will be at risk of isolation from the international community if it follows through with its export controls.

Previously, China used rare earths as a diplomatic tool in 2010.

It unofficially halted exports of certain elements to Japan.

This was during the tiff with Japan over Senkaku Islands, which China claims as the Diaoyu.

Japan was the largest importer of Chinese rare earths at the time.

China was likely hoping to draw out concessions from Japan by halting exports.

A case against the Chinese quotas was filed with the World Trade Organization, claiming they were designed to unfairly benefit Chinese industry.

Beijing lost that case in 2014.

Quotas were abolished the following year.

China's reputation as a supplier suffered as well.

This pushed businesses to innovate and led to the development of alternatives to rare earths in case a similar incident occurred.

China had identified rare earths as a key policy tool back in the 1980s, under then-leader Deng Xiaoping.

Cautious approach

Some in China are now wary of imposing export restrictions on the U.S. this time.

Blocking exports could also undermine China's claims that U.S. tariffs on the country violate WTO rules and isolate Beijing on the global stage.