Rare Earths, the U.S.-China Trade War and Your Phone

05:04' PM - Wednesday, 22/05/2019

U.S. President Donald Trump’s threat to cut off the supply of chips and processors to Huawei Technologies Co. is hitting China’s biggest tech company where it hurts – its dependence on other nations for the semiconductors and software in smartphones and networking gear. So when Chinese President Xi Jinping showed up days later at a rare earths processing plant, many observers saw a message in the visit: the U.S. has its own tech vulnerabilities, too.

1. What are rare earths?

A group of 17 chemically related elements found in mineral form that have magnetic and optical properties useful for making electronics more efficient. Electric vehicle makers rely on them for lighter-weight battery and motor components, while large wind turbines tend to use rare-earth-based magnets. They’re also frequent components of everyday objects like light-emitting diodes, or LEDs, used to light up smartphones and stadium score boards.

2. How rare are they?

Not as rare as other precious metals such as gold or silver. But they’re usually so intermixed with other minerals as to make their extraction and refinement costly, particularly when the mining conforms to the environmental standards of developed countries.

3. Who controls them?

China and other parts of Southeast Asia dominate both the mining and processing of rare earths. The country accounted for 71% of the world’s rare earths mined last year, according to the U.S. Geological Survey. Australia and the U.S. were distant runners up, together producing less than a third of China’s 120,000 metric tons. The U.S. relied on China for about four of every five tons of rare-earths imports between 2014 and 2017 and last year purchased $160 million-worth, up 17% from a year earlier. Outside of China, the world’s other large reserves of rare earths can be found in Brazil, Vietnam and Russia. A slump in prices in recent years has made opening up new sources unappealing.

4. What role have played in the trade war?

Not much so far. President Trump exempted U.S. imports of rare earths from the latest round of tariffs imposed on Chinese goods, after including them in a previous round of duties. China recently included rare earths in a batch of tariffs that it raised to 25% from 10% on American imports in retaliation for an expansion of U.S. tariffs by Trump. A Mountain Pass, California, company called MP Materials that is the only U.S. rare earths producer sells much of its ore to China. The chief executive of its majority owner last week said “it is accurate to call this a targeted, unilateral tariff.”

5. Why was Xi’s visit significant?

After Xi and his top trade negotiator, the vice premier Liu He, visited a domestic rare earths facility, analysts speculated that the strategic materials could be weaponized as trade tensions escalate. Amid China’s toughening rhetoric as trade negotiations continue, the visit raises a question over whether the tariff on U.S. imports could be just the beginning and lead to a ban or other restriction on exports of rare earths to the U.S. And it wouldn’t be the first time China hurt competition by restricting trade in the minerals. For 15 years, the country imposed trade limits, including quotas and duties, on rare-earth exports. Those were scrapped in 2015, after the World Trade Organization determined that the restrictions violated trade rules. - Bloomberg -

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