Why China's threat to restrict rare earth minerals is so serious
China's threat to curb exports of rare earth minerals to the United States could move the needle in an escalating trade war as the world's two largest economies continue to jockey for leverage.
The official newspaper of the Communist Party of China explicitly warned the U.S. on Wednesday that China would cut off rare earth minerals as a countermeasure in the escalated trade battle.
Rare earth minerals are a suite of 17 elements mineable in the earth's crust, with names such as cerium, europium and lutetium. They are commonly used in everything from car motors and electronics to oil refining and clean diesel to many major weapons systems the U.S. relies on for national security, including lasers and radar.
About 35% of rare earth global reserves are in China, the most in the world, and the country is a mining machine, producing 120,000 metric tons or 70% of total rare earths in 2018, according to the United States Geological Survey. The U.S. pales in comparison as it mined 15,000 metric tons of rare earths in 2018 and has a total of 1.4 million metric tons of reserves, versus China's 44 million.
U.S. consumption of rare earth compounds and metals relies heavily on imports, which rose to $160 million in 2018, according to USGS. Eighty percent were from China. To make it worse, although other countries supply to the U.S. including Estonia (6%), France (3%) and Japan (3%), much of their materials were derived from mineral concentrates and chemical substances produced in China, according to Hui Shan, commodities analyst at Goldman Sachs.
"The U.S.' reliance on Chinese supply may be higher than the import breakdown data suggest on the surface," Shan said in a note on Wednesday.
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