Rare earth metals became a hot topic several weeks ago when escalating trade tensions pushed China to flirt with the idea of potentially cutting off access to these essential metals.
While hardly heard of before, rare earth metals play a critical role in the manufacturing of various electronics, screens, magnets, industrial equipment, and especially in the defense sector.
With China dominating the world’s production of these resources, worries began to grow that the country could use its rare earth metal dominance as a bargaining chip against the U.S. Today, China’s rare earths association said it would support Chinese countermeasures against the United States, accusing the country of “bullying” behavior.
The Association of China Rare Earth Industry issued an official statement on Wednesday after a special meeting earlier this week to discuss possible options available to Chinese President Xi Jinping during a visit to a rare earth plant.
The global financial community worried that Xi’s visit to the plant was a subtle suggestion to American leaders that China is willing to use its dominance in rare earth production as a bargaining chip in negotiations.
“We express our firm opposition,” said the association in an official statement, adding that Chinese rare earth companies should actively expand overseas markets, as well as the domestic market. “The cost of tariffs imposed by the United States should be borne by the U.S. market and consumers.”
The trade association has rarely made comments on the ongoing trade war and also hasn’t overtly stated an intention to cut exports, all the attendees at the meeting with President Jinping agreed that U.S. tariff’s on Chinese goods constituted “trade bullying behavior.”
A group of 17 elements falls into the rare earth metals classification. While not necessarily rare in terms of sheer quantity available on the planet, they are difficult to isolate and extract from the environment.
At the same time, mining rare earth metals often have a heavy environmental impact. China, which has much more lax environmental regulations, naturally began to grow its production while other developed nations refrained from doing so.
Since then, the country ended up dominating in this sector, which has created a potential security issue for the U.S. in terms of its military production. While there are possible replacements to rare earth metals, these alternatives aren’t nearly as effective as substitutes and would lead to a downgrade in the quality of defense equipment used by the U.S. military.
While most rare earth producers happen to be Chinese, there are a handful of rare exceptions. The largest non-Chinese based rare earth miner is Lynas Corp (OTC: LYSCF), an Australian-based company, which is opening new projects in the U.S.
However, a domestic rare earth industry in America is virtually non-existent. As such, both parties ended up supporting a bipartisan bill that would expand the country’s industry, giving financial support to companies looking to start-up new projects. As such, many of the more speculative investors in the markets are hoping rare earth stocks will end up skyrocketing in the years to come.
Until then, the U.S. is going to remain woefully dependent on Chinese output, putting them at a disadvantage in negotiations at least in this respect.
