As trade tensions between Washington and Beijing continue to grow, most economic experts would say that China is a bit more dependent on America than vice versa, and as such, America has a slight upper hand in the negotiations.
However, there is one crucial area that China holds a stranglehold over with the U.S. is the rare earth metals sector. As it turns out, China’s powerful planning body has threatened the use of rare earth exports as a bargaining chip against the U.S. as tensions continue to grow.
While not as well known by investors and the public at large, rare earth metals remain an incredibly important import for America. A group of 17 metals with a number of properties, these commodities are used in a number of high-tech applications both in commercial markets as well as in the defense sector.
Back when Chinese exports tightened around a decade ago, the situation became so severe that the international security community considered their reliance on Chinese sources of rare earth metals as a significant strategic threat.
While such restrictions ended up dissipating, the U.S. has done little since then to rectify its over-reliance on Chinese rare metal imports, something that experts in the intelligence, industrial, and military communities are regretting.
The National Development and Reform Commission, which oversees Chinese economic policy shifts, went on to threaten to cut-off exports of these crucial metals to the U.S. after President Donald Trump blacklisted Chinese telecom giant Huawei. “Will rare earths become China’s counter-weapon against the US’s unwarranted suppression? What I can tell you is that if anyone wants to use products made from rare earth to curb the development of China, then the people of the revolutionary soviet base and the whole Chinese people will not be happy,” the notice read according to The Financial Times.
Nor was this the first time that Chinese sources have referenced America’s dependency on rare earth metals from China as possible leverage. Earlier this month, a state-owned Chinese newspaper, the Global Times, went on to say that this situation was “an ace in China’s hand” that could be used to temper President Trump’s negotiation attempts. China has already moved to add a 25 percent tariff on rare earth products bound to the U.S.
In response, U.S. public officials have already undertaken efforts to start a rare earth metal revival domestically. A new sweeping law by bipartisan support would conduct surveys on the country’s stockpile of rare minerals, data which is currently out of date.
At the same time, a number of companies are sensing this change and are expanding to operate in America. Earlier, one of the largest non-Chinese rare earth miners, Lynas Corp (ASX; LYC), announced they were planning on building a rare earth plant in the U.S., something that hasn’t been seen in many years.
For savvy investors who are keeping their eyes open for the next big thing, the rare earth metals industry is expected to explode over the next few years, similar to how crypto and cannabis surged in the year or so prior to becoming mainstream.
