China Tightens Restrictions on Export of Rare Earth Metals

What Happened?

China’s Ministry of Commerce announced yesterday that foreign companies seeking rare earth metals originating in China or processed with Chinese technologies will need to first obtain a license. Under the new rules, licenses will be mandated for the export of technologies used in rare earth mining, processing, and for magnets used in manufacturing. 

The new Chinese regulations target rare earths that have military and semiconductor applications. The announcement from Beijing comes ahead of the next round of trade talks between President Trump and President Xi Jinping, which are to be held later this month. 

Why it Matters

China has a dominant position in the processing of rare earths. Due to a combination of rich deposits, government subsidies for processing, and a supply chain that integrates manufacturing and processing, China has been able to position itself as a world leader in rare earth metals. The new restrictions from Beijing on rare earths are likely designed to help China maintain its dominance, and they could also be used as leverage in the upcoming trade negotiations with the United States.

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As Popular Mechanics reported, China uses its near monopoly on rare earths as a political weapon. Rare earths can be found in products ranging from smartphones to drones and semiconductors. Since 2005, China has changed its strategy for how it controls and uses rare earths. In 2005, China exported 65,600 metric tons of rare earths, about half of what the country produced. By 2010, exports had been slashed to 30,300 metric tons, and China announced that it would reserve more material for domestic uses and begin stockpiling. 

China has used its growing stockpile ever since to lower prices for domestic consumption, which gives an advantage to a range of Chinese industries that use rare earths for manufacturing their products. That in turn has allowed Chinese manufacturers to beat the prices of many foreign firms, giving Chinese firms a state-created competitive advantage in the global market for a variety of products, especially electronics. 

Rare earths can be found in many places, but mining them can be difficult because they are often mixed in with other rocks. In parts of Chinese-controlled Mongolia, rare earths can be found in high concentrations, which makes mining them more efficient and more profitable. Easy access to concentrated supplies has helped China build a dominant global position in rare earths.

The Trump Administration has not yet publicly commented on the new Chinese regulations, but they will likely be a topic for discussion in the upcoming trade negotiations.

How it Affects You

As China and the United States continue to vie for economic superiority, the export of rare earths is likely to remain a crucial part of that contest. The United States has also increased efforts to locate more domestic sources of rare earths, which could help lessen China’s dominance.

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