US changes its strategy on rare earths for trade war with China

The rare earths rise as one of the battlefields between the United States and China in the commercial and technological war, increasingly intermingled. The great dependence of the former on the supply of these natural resources on the latter makes rare earths play a leading role in any possible future commercial or technological agreement.

China represents more than 80% of the imports of rare earths for the USA despite only housing 37% of the world reserves of these raw materials. Rare earths is the name by which a group of 17 chemical elements are known that are fundamental for the industrial sector (especially in the defense and arms sector), technology (vital in the manufacture of consumer electronic products) and clean energy (including electric cars) worldwide. Rare earths are on the European Union list of critical raw materials since 2011.

The possible paralysis, or restriction, in the exports of these minerals by China, from its dominant position, is one of the greatest fears of the Donald Trump administration. China, which has intervened in its production, maintains the global processing capacity of rare earths while the Australian Lynas Corp is the only non-Chinese company with significant capacity.

From Washington they are aware that the rare earths could be the main weapon of Beijing in the commercial war and that such a measure would have direct and long-term consequences on the US economy. For this reason, the Pentagon is developing a new strategy on the group of chemical elements that goes beyond the determining role of China as a supplier.

On the one hand, the Department of Defense is determined to diversify supplies of critical minerals. For this, it has its eye on international rare earth mining, as is the case of Mkango Resources Ltd, in Malawi, and Rainbow Rare Earths Ltd, in Burundi, with which the Government has already held talks, according to Reuters. On the other hand, the White House would be looking for new federal funds to reinforce national production, processing capacity and storage of critical supplies of rare earth minerals through specific economic incentives, such as specific loans at low interest rates.

New sources of supplies, both national and international, would give the US a little more bargaining power in future talks between the two countries in the search for an agreement to end the trade war. The US Department of Commerce, published last week a report that included a plan to promote the location and extraction of rare minerals, with the aim of ensuring that the supply of rare earths used in all types of products is not cut off – from the manufacture of missile systems to that of mobile phones.

“Through the recommendations detailed in this report, the federal government will take unprecedented steps to ensure that the United States is not isolated from these vital materials,” Commerce Secretary Wilbur Ross said in a statement.

The first objective of the new strategy on rare earths is to reduce its dependence on China. Days after the introduction of the latest tariffs on China, in the race of mutual impositions of tariffs, Beijing announced on May 13 an increase in tariffs from 10% to 25% to 5,140 US products worth 60,000 million dollars, which included rare earth minerals, making it less economical for the US to process the material in China.

Days later, Chinese President Xi Jinping visited a factory of the coveted raw materials in Ganzhou, in central China. A clear sign that the Chinese leader is aware of the power that rare earths represent in trade negotiations with the US and how rare it is to find them in a pure form.

In the US, there is only one facility that produces rare earth minerals, the Mountain Pass Mine in California that was declared bankrupt in 2017 and reopened last year. MP Materials, owner of the Mountain Pass mine after its purchase, sends the approximately 50,000 tons of rare earth concentrate it extracts every year from California to China for processing, according to Reuters data and which the trade war has led to apply the 25% tariff.

The great challenge of the United States is that it does not have the capacity to refine the rare earths in its country, and there are no other refineries in the world, so it is forced to export them to China. “There is no refining capacity in the world outside of China,” James Litinsky, vice president of MP Materials, told CNBC.

“If we can not be economic, there is no hope for the US industry.” There are reports that US-based companies, such as Texas Mineral Resources Corp or Rare Element Resources Ltd, have rare earth processing plants in the United States. construction or in the planning stage, including one in Mountain Pass next year.

“China’s dominance over the rare earth element market illustrates the potentially dangerous interaction between China’s economic aggression guided by its strategic industrial policies and the vulnerabilities and gaps in the US manufacturing and defense industrial base,” the department said. of Defense of the United States in October of last year in a report sent to President Donald Trump about the vulnerabilities in the US industrial defense base.

“When China needs to show muscle of soft power through the seizure of rare earths, it does not hesitate to do so, as Japan learned in a maritime dispute of 2010,” the document said in reference to the territorial struggle between the two countries for the Senkaku Islands.

The importance of rare earths in industrial and technological manufacturing is undeniable. “We now have rare earths in euro notes to prevent counterfeiting and in mobile phones to be tactile and emit sound and light.In our technified culture the list of articles that contain them is very extensive.They are indispensable for green technologies, hybrid cars and wind turbines make possible more powerful and lighter weight magnets that allow smaller and smaller appliances, they are needed to manufacture night vision goggles, cruise missiles and other weapons, “says Ricardo Prego Reboredo, CSIC researcher and author of the book ‘The rare earths’ .

Among the 17 elements that are classified as rare earths, which are characterized by being good conductors of electricity and their magnetic properties are cerium, used for diesel engines, dysprosium, used in hybrid cars, erbium, a fiber optic component, europium, used in flat screens and laser machines, or praseodymium, used for aircraft engines.

A trade agreement between the US and China, the two largest economies in the world, will depend to a large extent on whether their respective presidents, Donald Trump and Xi Jinping, reach consensus during the upcoming G20 summit in Osaka, Japan, although many predict that the top representatives are preparing for a long-term battle.

The dependence on raw materials from foreign sources is a strategic vulnerability for the US. Although no one can say whether the threat of banning rare earth exports by China would change the dynamics of the current trade war, the United States is clear that it wants to promote a new strategy in the production, refinement and sale of rare earths. in its protectionist and unilateral policy.

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