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China’s retaliation against President Donald Trump’s tariffs includes more export controls on rare earth minerals, which are vital to electronics and battery manufacturing.
The Chinese government said over the weekend that it will maintain its supply of rare earths to the rest of the world stable while limiting U.S. access to the minerals.
China is the world’s dominant producer of rare earth minerals, accounting for about 70 percent of the world’s supply at the moment. More precisely, China supplies roughly 60 percent of the raw minerals, but controls almost 90 percent of processing and refining capacity.
China controlled 90 percent of the market a decade ago, but alternative suppliers have ramped up production. The Chinese retaliated for this infringement upon their near-monopoly by setting record-high production quotas in a bid to bring prices down and bankrupt their competitors.
China sought to use rare earths as a trade weapon again on Sunday, designating seven of the valuable minerals for additional export controls. Chinese mining stocks soared on the promise of bigger earnings from higher prices.
China’s export controls did not explicitly cut off exports of rare earths to the United States, but importers know from experience that the practical effect of Beijing announcing “tighter controls” to protect its “national interests” usually means supplies are quickly and dramatically reduced.
The export controls pointedly excluded two rare earths, neodymium and praseodymium, which have abundant supplies outside of China. All seven of the rare earths subjected to additional export controls are minerals which are primarily supplied by Chinese sources. Chinese officials on Friday claimed the new controls were justified because these seven minerals have “dual-use” military applications, and are therefore vital to China’s national security.
“As long as companies do not engage in activities that harm China’s national sovereignty, security, and development interests, the export control measures won’t affect their normal operation and trade. Nor will they affect the stability and security of international industrial and supply chains,” the China Nonferrous Metals Industry Association (CMRA) said on Sunday.
South Korea, which is heavily dependent upon Chinese rare earth supplies for its electronics industry, held a “supply chain inspection meeting” on Sunday to assess the impact of China’s trade restrictions on rare earth metals.
The South Korean trade ministry said at the meeting that it believes government and private stockpiles are sufficient to last for six months on two of the seven restricted rare earths, while manufacturing processes can be adjusted to reduce consumption of two others.
The trade ministry said it would seek alternative supplies of the minerals China is restricting to avoid manufacturing disruptions, potentially including Australia, but would also remain in contact with the Chinese commerce ministry through a “supply chain hotline” to make sure export approvals for South Korea are not unreasonably delayed.
Australian mineral companies expressed optimism on Monday that they could benefit from China reducing its supplies. Australian refiners were already making plans to cut into China’s huge share of the rare earths market, so Beijing’s export controls could give them the money and opportunity they need to execute those plans more rapidly.
