Economy

China to restrict exports of rare earths to the US

China to restrict exports of rare earths to the US

US Secretary of State Mike Pompeo, asked about the rare earths threat during an interview, said that Americans have already "lost and suffered for decades under the current rules" and that Trump's "singular focus is to push back" on China. 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.

While the U.S. Geological Survey reports that China produced 70 percent of rare earth minerals in 2018, there are rare earth minerals elsewhere in the world.

China accounted for 80% of rare earth imports between 2014 and 2017 by the United States, which has excluded them from recent tariffs along with some other critical Chinese minerals.

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.

The rally comes shortly after Chinese government-funded media, such as the Global Times and People's Daily, reported that China may use the elements to hit back against USA pressure.

"Rare earths are critical elements used across numerous major weapons systems the U.S. relies on for national security, including lasers, radar, sonar, night vision systems, missile guidance, jet engines, and even alloys for armored vehicles", the report said. "China may also take other countermeasures in the future", Hu wrote.

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Rare earths "are abundant across the globe", said OANDA's Halley, but added that many countries are turned off by the heavy costs - financial and environmental - incurred in the production process.

California's Mountain Pass mine is the only operating USA rare earths facility. President Xi Jinping visited a plant earlier this month, accompanied by his chief trade negotiator with the US, fueling speculation that the strategic materials could be weaponized in China's tit-for-tat with the U.S.

Shares in rare earth companies surged in the Shanghai and Shenzhen stock markets during Wednesday trading.

But Ryan Castilloux, the managing director of the rare-earths consultancy Adamas Intelligence, tweeted on Wednesday that there was "still a low probability" that China would withhold rare earths to the USA, "as it would quickly (and painfully) escalate tit-for-tat". China blocked some rare-earth exports to Japan after a maritime dispute in 2010. China vast capacity for production means it can flood the market with supply to depress global prices, the threat of which has depressed investor willingness to invest in production outside of China. The estimated value of rare-earth compounds and metals it imported previous year reached $160 million, an increase from $137 million in 2017. Now China needs to tighten management of rare-earth enterprises, especially foreign-invested companies, to make smuggling absolutely impossible. China Rare Earth Holdings Ltd soared more than 40%, while Australia's Lynas Corp, the only major rare earths producer outside of China, climbed as much as 14.6%.

In 2010, Beijing cut rare earth export quotas after a Chinese trawler collided with two Japan Coast Guard ships near uninhabited islands in the East China Sea that both countries claim.

When the U.S. raised additional tariffs on US$200 billion in Chinese goods, sparking retaliatory Chinese tariffs on US$60 billion in USA products, the minerals were one of the only items left off the United States tariffs list.