Trade War Becomes "Tech War" As Trump Cracks Down On China's Rare Earth Metals

While a closer read of the 200+ page schedule released last night by the Trump administration that listed all the exports captured by the $200BN in new proposed Chinese tariffs revealed some oddities such as badger hair, bovine semen, frog legs, flamethrowers, fetal bovine serum and blood, one product group stood out: rare-earths, an esoteric collection of minerals with strange names (Dysporsium, Europium, Neodymium, Lanthanum and Yttrium), which all have niche, high-tech applications and a history of scarcity. They’re used in everything from cell phones to hybrid vehicles to wind turbines and military hardware, which as Bloomberg writes suggests that the trade war is starting to hit its stride as a tech war.

But more importantly to the trade - or now tech war - is that China is effectively the only producer in size of these critical components that keep America's high tech industry running.

Rare earths, which are also used in military applications, weren’t mined domestically last year, leaving the U.S. to rely entirely on supplies from abroad. According to the US Geological Survey, the country imported $150 million worth of rare-earth metals and compounds in 2017, a 27% increase from the prior year.

More notably, China accounted for 78% of the imports of the materials in 2013-2016. China also produced more than 80% of the world’s rare-earth metals and compounds in 2017, and has about 37% of global reserves, according to Bloomberg.

What is odd, is that by targeting rare earth metals, Trump could impair only the US tech sector, but end up damaging the broader economy: just last year we wrote that "Rare Earths Are China's Most Potent Weapon In A Trade War", and by imposing tariffs on China's exports, not only will their prices soar for their end-users in the US, but if China is so willing, it could halt exports altogether, rerunning the 1983 oil embargo scenario... however using a far more valuable modern day equivalent to oil.

And, as Dan McGroarty - the founder of Carmot Strategic Group, a consulting firm that advises companies on rare-earth minerals and metals - told Bloomberg, tariffs on rare-earth elements “could be a significant pain point for the U.S.,”

“For those of us who’ve been watching the trade war unfold, we also understood it’s a tech war not just trade, and that sooner or later they’d be targeting metals in the tech space that China and the U.S. are both intending” to dominate.

That said, McGroarty added that it’s unclear whether potential import tariffs on these raw materials will have a material impact on U.S. consumers, as much of it is processed into advanced materials and products elsewhere.

What would certainly have an effect, is if China decided to retaliate to the US tariffs by halting exports altogether: after all the absolutely dollar amount of exports is relatively modest, and yet their importance is critical.

After all recall that back in 2011 when China decided to consolidate its control of the industry, it sent the prices of the various metals soaring.

This is what Bloomberg reported back in the summer of 2011 when Rare Earths did their best bitcoin impression:

Prices of the rare earths used in lasers and plasma televisions more than doubled in the past two weeks as China tightens control of mining, production and exports, according to market researcher Industrial Minerals.

The cost of dysprosium oxide, used in magnets, lasers and nuclear reactors, has risen to about $1,470 a kilogram from $700 to $740 at the start of the month, Industrial Minerals said in an e-mailed statement. Europium oxide, used in plasma TVs and energy-saving light bulbs, has more than doubled.

China, supplier of 95 percent of the 17 elements known as rare earths, has clamped down on rare-earth mining and cut export quotas, boosting prices and sparking concern among overseas users such as Japan about access to supplies. The government may further reduce export quotas, pushing prices higher, Goldman Sachs & Partners Australia Pty said last month.

“China has long said it will consolidate the industry but it’s moving more rapidly than many observers anticipated,” said Dudley Kingsnorth, a former rare earths project manager and now chief executive officer of Perth-based advisory Industrial Minerals Co. of Australia. “There might be an element of speculation but I think the price rises have been driven by people who are desperate for the product.”

The world’s most populous nation will raise standards for exporters and won’t approve new project expansions in an effort to curb overcapacity, illegal mining and sales, the government said last month. The Ministry of Land and Resources said yesterday it wants to set aside some rare earth deposits.

Fast forward 7 years later, when having consolidated the industry, what would prevent China from doing what it did in 2011, and retaliate to the US in the most painful way possible: by halting exports to the US altogether, in the process crippling so many US tech supply chains that are intimately tied to the strangle-named metals?

For now, the market does not appear too concerned and the REMX rare earth metal is trading near the lowest levels of the past year.

However, if China decides to retaliate in a way that really hurts the US, that may change fast.

Comments

Sonny Brakes Wed, 07/11/2018 - 18:27 Permalink

As far as I'm concerned the USA already owns all of the rare earth metals that they can afford to buy and what they can't buy they'll take by force if necessary, but you already knew that.

JimmyJones NidStyles Wed, 07/11/2018 - 18:39 Permalink

Yes, awesome thank you Mr. President this is how we can actually get moving and start making some electronic components again. The Chinese have been locking up supply every where. We can't touch ours due to total BS regulations over Thorium. A step in the right direction. We have tons of rare earth minerals already easily extracted and ready for production. If our leaders want to lead then get the supply chains built and let industry spring up

In reply to by NidStyles

FreeMoney brianshell Wed, 07/11/2018 - 19:31 Permalink

Once upon a time the US mined its own rare earth metals.

https://www.energy.gov/articles/high-concentrations-rare-earth-elements…

Because rare earth metals are rare...you dont find big nuggets of it.  As such the economical way to mine for these is open pit or strip mining.

https://en.wikipedia.org/wiki/Mountain_Pass_rare_earth_mine

Environmentalists and activist government sued and won against the mining company and now the majority of rare earth metals are imported from places where strip mining is allowed....like China. 

This is a clear example of the uneven interference by government in an industry causing the off shoring of jobs, and weakening the country by eliminating our access to our own resources.

In reply to by brianshell

CPJindex brianshell Wed, 07/11/2018 - 21:42 Permalink

Brianshell, that is correct but while we wait for Thorium MSR's to get going there was a great idea going a few years back to create a "Thorium Bank" 

https://www.zdnet.com/article/solve-the-energy-and-rare-earth-crisis-jo…

The idea is that everywhere rare earths are found, there is Thorium also recovered - the problem is that according to mining regulations, recovered Thorium has to be treated as highly radioactive just like Uranium even though it is only a little bit radioactive - that means any rare earth mine has to handle the Thorium in a very expensive way and this can make the rare earth mine not cost effective (whereas in China nobody gives a shit about it).

The Thorium Bank would be something set up as a government initiative to accept the Thorium from rare earth mines in the USA to relieve them from the burden of handling the recovered thorium - which means more rare earth mines could be built in the USA and be profitable - and the USA could supply its own rare earths.

Down the track the stored Thorium could be used in MSR's.

However it got rejected by lawmakers back in 2012.

In reply to by brianshell

annettehunter Occams_Razor_Trader Thu, 07/12/2018 - 10:36 Permalink

An embargo won't do anything for the Tesla shorts. Lithium mostly comes from South America. US sources such as extraction from produced water, and brine wells are also coming on line. Cobalt is the real choke point, but comes from Africa, price is driving increased prospecting. Tesla uses AC induction motors rather than rare earth magnet motors, also unaffected.

 

In reply to by Occams_Razor_Trader

CPJindex Dixie Rect Wed, 07/11/2018 - 23:33 Permalink

Dixie Rect, I didn't know that but I am not surprised as the regulations for rare earth mining ( due to the thorium that recovered along with the rare earths ) are unnecessarily awful!

So sad congress didn't pass the bill to start the "Thorium Bank" a few years back as it would have enable rare earth mines to flourish all over the USA.

https://www.zdnet.com/article/solve-the-energy-and-rare-earth-crisis-jo…

 

In reply to by Dixie Rect

Cruel Aid Wed, 07/11/2018 - 18:34 Permalink

We've got em. EPA hated them, so we just decided to buy them till the need and price line up. Good luck getting them out of Cal though.

Cal and New Mexico

Pseudonymous Wed, 07/11/2018 - 18:41 Permalink

Why would he tax American industries and consumers through tariffs on rare earth, as a retaliation for American industries being taxed by China? Taxes such as tariffs hurt both the importing and exporting side, you know.

This reaction tells me Americans are so weak they can't figure out how to smuggle their stuff without paying the preposterous tariffs that foreign governments are demanding.

I'd be curious to see if Chinese rare earths mysteriously find their way into the US without the government seeing any revenue for it.