- Chinese President Xi Jinping visited a rare-earth magnet factory in eastern China on Monday.
- He was accompanied by Vice Premier Liu He, China’s top economic adviser, who has been leading trade negotiations with the US.
- The highly publicized photo op suggests that China may be planning to weaponize the rare-earth industry to make the US back down in the ongoing trade war.
- The US relies heavily on Chinese exports of rare-earth materials, which can be found in products ranging from batteries to smartphones, Teslas, and fighter jets.
- Stocks in rare-earth companies surged after Xi’s visit.
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Xi Jinping, China’s president, may have deliberately revealed how he plans to strike back at the US in the trade war by taking a trip to a magnet factory in eastern China on Monday.
Xi visited the JL MAG Rare-Earth factory in Ganzhou, where he learned about the “production process and operation” of the company, which specialises in magnetic rare-earth elements, “as well as the development of the rare-earth industry,” the state-run Xinhua news agency reported.
He was accompanied by Vice Premier Liu He, the country’s top economic adviser, who has been leading trade negotiations with his US counterparts, Trade Representative Robert Lighthizer and Treasury Secretary Steven Mnuchin.
Xi’s highly publicized attention on the country’s rare earths suggests he could use the products to cripple the US tech and military industries and make the Trump administration back down in the yearlong trade war.
Rare-earth materials consist of 17 elements on the periodic table that can be found in products critical to the US’s manufacturing, tech, and defence industries – from batteries and flame retardants to smartphones, electric cars, and fighter jets, according to Reuters and the Financial Times. They are used in tiny amounts but can be crucial to the manufacturing process.
“It’s signalling they know it’s not only important to US high-tech industries – electric vehicles, wind – but also defence. That’s the message they’re trying to get out,” Ryan Castilloux, the managing director of Adamas Intelligence, a rare-earths consultancy, told the Financial Times.
What rare earths mean to China and the US
China is the world’s largest supplier of rare-earth materials, accounting for 90% of global production, and the US relies on it for 80% of its rare-earth imports, the South China Morning Post and Bloomberg reported.
China’s state-affiliated Global Times tabloid described Xi’s Monday visit as the leader’s “huge support to the critical industry that has been widely viewed as a form of leverage for China in the trade war with the US, but one that also faces issues that need to be addressed.”
The Trump administration did not include Chinese imports of rare-earth materials in its latest lists of tariff targets, showing its reliance on China for them.
China also said earlier this month that it would raise tariffs on $US60 billion worth of American goods starting June 1, resulting in duties of 5% to 25%.
There is also “growing speculation” that China could ban rare-earths exports to retaliate against the US, the South China Morning Post reported.
Shares of companies working with rare-earth elements skyrocketed on Monday and Tuesday after Xi’s visit.
China Rare Earth Holdings is up 135% today. pic.twitter.com/oXlnEBCpUt
— Tracy Alloway (@tracyalloway) May 21, 2019
China has weaponised its rare-earths exports in the past. In 2010, Beijing cut off the exports to Japan amid a maritime dispute that saw a Chinese boat captain captured by Japanese authorities.
The export ban was so powerful that Japan immediately released the captain in what The New York Times described at the time as “a concession that appeared to mark a humiliating retreat in a Pacific test of wills.”
In 2011, the House Committee on Foreign Affairs voiced concerns over China’s ability to use rare-earth exports in its foreign policy, in a hearing titled: “China’s monopoly on rare earths: Implications for US foreign and security policy.”
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