Who will yield first in the U.S.-China contest over rare earth minerals?
The United States, the world's second-largest producer of rare earth elements after China, finds itself in a delicate trade standoff with its Asian counterpart. This dispute, centred around the strategic minerals essential for modern technology, is causing ripples in various industries on both sides of the Pacific.
China has been easing the export of rare earths to civil industries, but the approval process for the U.S. defence sector remains complex. President Trump's plea for China to resume rare earth exports and loosen export restrictions on certain products has not yet been fully acted upon by Beijing.
The U.S. government is actively pushing for an independent pricing mechanism for rare earths to stimulate investment in the industry. However, it seems challenging to match China's heavy subsidies in this sector.
The issue of rare earths has taken on a new dimension in the manufacturing of electric vehicles. China's restrictions on certain magnets have made it difficult for Western electric vehicle manufacturers to continue production.
Beijing's aim is to limit or even stop the U.S. military industry's access to rare earths. In response, Chinese exports of certain heavy metals, including terbium and dysprosium, to the U.S. have fallen to zero for several months.
The Trump administration's recent move to ban the sale of "sensitive products" to China, including ethane, Electronic Design Automation software, and aerospace equipment and engines, has further escalated tensions.
If the ban persists, the U.S. defence industry could face significant disruptions in the production and supply of critical weapons systems. To mitigate this, the U.S. government has decided to set a minimum purchase price for MP Materials, a major rare earth producer, at nearly double the current market price.
Despite the challenges, it will take at least four to five years for the U.S. to develop its rare earth processing capacity. In the meantime, Chinese measures have made it nearly impossible for the U.S. military industry to bypass the Chinese market by buying from other countries since July.
Beijing's hardline approach could backfire, as it is already causing immense dissatisfaction among Western non-military industries and even contempt among those in the U.S. defence industry. The ongoing trade dispute over rare earths is shaping up to be a significant geopolitical battle in the years to come.
