China steps up threat to deprive US of rare earths

BEIJING: Chinese state media on Wednesday dangled the threat of cutting exports of rare earths to the United States as a counter-strike in the trade war, potentially depriving Washington of a key resource used to make everything from smartphones to military hardware.

The warning is the latest salvo in a dispute that has intensified since President Donald Trump ramped up tariffs against China and moved to blacklist telecom giant Huawei earlier this month, while trade talks have apparently stalled.

Huawei stepped up its legal battle on Wednesday, announcing it had filed a motion in US court for summary judgment to speed up its bid to overturn US legislation that bars federal agencies from using its equipment over security concerns.

Beijing had already dropped a big hint that rare earths could be in the firing line by showing images last week of President Xi Jinping visiting a rare earths factory in Ganzhou, central China. State media made it clearer on Wednesday.

“Will rare earths become China’s counter-weapon against the unprovoked suppression of the US? The answer is not mysterious,” warned The People’s Daily, the Communist Party mouthpiece. The state-owned Global Times warned in an editorial that the “US will rue forcing China’s hand on rare earths”.

Shares in rare earth companies surged in the Shanghai and Shenzhen stock markets on Wednesday. An unnamed official from the National Development and Reform Commission, China’s state planner, had issued a cryptic warning late on Tuesday. The official said rare-earth resources should “serve domestic needs first” but China is also willing to meet the “legitimate needs of countries around the world”.

China produces more than 95 per cent of the world’s rare earths, and the United States relies on China for upwards of 80 per cent of its imports. Rare earths are 17 elements critical to manufacturing everything from televisions to cameras and lightbulbs.

Huawei, meanwhile, is fighting back in what is shaping up as a battle for who will dominate the future of high-tech. Huawei has sued the US over the federal ban. But it also faces a recent Trump administration order that cuts it off from critical American-made components for its products.

China has been accused of using its rare earth leverage for political reasons before. Japanese industry sources said it temporarily cut off exports in 2010 as a territorial row flared between the Asian rivals, charges that Beijing denied.

But experts say the Japan experience showed that China’s leverage has some limits. The report said China’s rare earth advantages were already slipping away in 2010 due to normal market behaviour, including increases in non-Chinese production and processing capacity, and innovations that have contributed to reducing demand for some rare earth elements.

Analysts have said China appears apprehensive of targeting the minerals just yet, possibly fearful of hastening a global search for alternative supplies of the commodities.

The Global Times acknowledged that banning rare earth exports to the US could “produce complex effects, including incurring certain losses on China itself.” However, it added, “China also clearly knows that the US would suffer greater losses in that situation.”