Economy /

It was only supposed to be a threat, a warning to scare the United States. Instead, China is serious. Beijing has cut exports of rare-earth elements in response to the treatment that the Trump administration has meted out to Huawei. The worse the trade war gets, the more the Dragon puts the squeeze on the materials that are extremely precious for Washington and the rest of the world.

Beijing cuts off the supply

The latest figures reported in the South China Morning Post show how, between April and May, exports of Chinese rare-earth elements fell by 16%, standing at around 3,640 tonnes compared with 4,329 the previous month. It is also very interesting to note how in the first five months of 2019, overseas shipments, including to the United States, recorded a 7.2% fall compared with the same period of 2018. Currently, materials exported by China stand at 19,265 tonnes. The Chinese government’s strategy to harm the United States is obvious: cutting exports of a commodity that is vital for American interests and using its stocks of rare-earth elements without sharing them with anyone. Until a few months ago Washington was the number one importer of rare-earth elements from China. Fifty nine percent of US imports, worth a total of USD 92 million, actually came from Beijing.

A strategic move

Why are rare-earth elements so sought after? The answer is simple: these materials, 17 elements which have special electrochemical and magnetic properties, are used in the manufacture of fast-moving consumer goods, such as flat screen displays (for smart phones, tablets, TVs, monitors) and also in filament lights and LEDs. If the United States dominated the sector until the ’80s, in the years to come China has indicated that it is about to overtake. Chinese mineral extraction was more profitable because of both cheaper labour and less stringent environmental laws. Having a monopoly over rare-earth elements means being able to influence the sector of new technologies, one of the cornerstones of the 21st century economy. Beijing is advising the United States that perhaps it should review its strategy and, why not? Perhaps this would put an end to the counter-productive tariff war.

The Chinese explanation: “Simply an environmental policy”

In spite of the fact that it appears obvious that the decline in exports is linked to the trade war with Washington, the explanation coming out of China about what’s happening is different. “The fall in shipments of rare-earth elements,” explained Cui Fan, Professor of the Chinese University of International Business and Economics, “is the result of an environmental protection policy aimed at conserving internal resources. China should promote high-quality development.” The shadow of the trade war is always lurking in the background.

It's a tough moment