China's Rare Earth Controls: A Surgical Strike That Outmatches Trump's Tariffs

Strategic Insights -

China's decision in April to restrict exports of rare earth minerals, particularly the less common "heavy" rare earth elements, has proven to be a more effective and targeted move than the US's tariffs. Despite the US's attempts to negotiate a trade deal, China has emerged as the clear winner in these early skirmishes, with Trump lifting most of the tariffs he had imposed. China's rare earth controls, imposed via "dual-use" export licensing, have successfully targeted the supply chain, making it easier for the authorities to control. European car manufacturers have complained, but China is differentiating between European and American companies, with suppliers to Volkswagen among the first to receive a licence to buy rare earths.

Key Takeaways:

  • China's rare earth controls, imposed in April, are a more surgical strike than the US's tariffs, targeting the supply chain and making it easier for the authorities to control.
  • The restrictions focus on the less common "heavy" rare earth elements, such as dysprosium, which has no large rival producers outside China.
  • China's state-controlled companies dominate rare earth production, making it easier for the authorities to control the supply chain.
  • The US attempted to use tariffs to bring Beijing to heel, but Trump's untargeted approach risked losing key industrial inputs and emptying consumer goods shelves.
  • The US's tools for controlling China's economy, including restrictions on US technology and outward investment, have been too easily circumvented.
  • China has rapidly developed its own chip technology, making it unlikely that the US can regain ground lost to China through export controls.
  • Beijing is managing to clear the low bar of exceeding Washington's competence by some distance.

Statistics:

  • 30: The number of plants Volkswagen has in China.
  • April 4: The date when China imposed restrictions on rare earth element exports.
  • 2010s: The time period when China restricted rare earth production and smuggling.
  • 2010s: The time period when China's expansion of mineral production outside China and through smuggling by its notoriously lawless miners and processors undermined earlier restrictions.

Sources:

  • Alan Beattie, Senior Financial Times Commentator, in "Xi Jinping and Donald Trump: A battle of wits in London" (no date provided).
  • Alan Beattie, Senior Financial Times Commentator, in "The US-China trade talks: An achievable truce?" (no date provided).