China should think hard before using rare earths as a ‘weapon’ in trade tit-for-tat with US over Huawei

The 2010 weaponisation of rare earths rebounded badly on China, even as US sanctions on Huawei look to be doing the same to Americans

Tit-for-tat action usually ends up in pain for all but, in the long term, competition can also herald change and a fresh economic equilibrium

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Rare earth mining is a dirty business and so is a trade tit-for-tat. The unintended effects can be messy and rebound in unexpected ways for the countries involved. Photo: Reuters

Published: 1:00am, 24 May 2019Updated: 2:22am, 24 May 2019

In 2010, the Chinese woke up to the fact that they were producing 95 per cent of the rare earths in the world. The metals, such as lanthanide elements and scandium, are largely used in catalytic converters, rechargeable batteries, powerful miniature magnets and for making very hard alloys used in military armoured vehicles and projectiles.

They are dirty to mine and, as China is also the biggest user, they made a half-hearted attempt in that year to protect the trade by slashing exports by 40 per cent. Others saw this as an aggressive weaponisation of the trade, cornering the market and driving up prices. It worked; prices rose by between 10 and 40 times.

But these neighbouring elements in the periodic table are neither earth nor particularly rare and the action hit demand badly and encouraged substitution, which caused long-term damage to prices and manufacturers.

It was an own goal. Beijing lost a 2012 World Trade Organisation complaint brought by the United States, Japan and the European Union, and the unintended consequences hurt Chinese interests as much as anyone else’s.

That is why it was interesting to see President Xi Jinping visit a rare earth mining facility in Jiangxi province this week as a sign to the US that Beijing, too, could retaliate in trade terms. China still mines over 80 per cent of the world’s rare earth metals. It also illustrates that the use of monopoly powers needs to be used with care — for it can badly rebound.

President Xi Jinping’s visit to Jiangxi’s rare earth mining base is significant as the province is where China’s defeated Red Army started its fabled Long March in 1934. Photo: Xinhua

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