US-China Trade War Turning Into Tech War… Threat of Rare-Earths Cutoff

Xi Jinping calls for self-reliance as China grapples with long-term US challenge of trade war and ban on Huawei and other technology manufacturers

  • Chinese president uses three-day trip to Jiangxi to drive home importance of indigenous technology and resources
  • Analyst says two countries could be at odds well after the next decade

Chinese President Xi Jinping has stressed the need for self-reliance and innovation in a rallying call to the country to prepare to fend off various long-term challenges from the United States.

“Technological innovation is the root of life for businesses,” Xi said on Monday on a visit to Jiangxi province, state-run news agency Xinhua reported. “Only if we own our own intellectual property and core technologies, then can we produce products with core competitiveness and [we] won’t be beaten in intensifying competition.”

Xi’s comments, broadcast across the country on Wednesday night, came after US President Donald Trump signed an executive order effectively banning products made by the Chinese telecoms equipment maker Huawei Technologies from the US market.

They also follow a breakdown in the 10 months of trade talks between the two countries, resulting in China and the US trading fresh punitive tariffs on imports.

 

China Raises Threat of Rare-Earths Cutoff to U.S.

With a simple visit to an obscure factory on Monday, Chinese President Xi Jinping has raised the specter that China could potentially cut off supplies of critical materials needed by huge swaths of the U.S. economy, underscoring growing concerns that large-scale economic integration is boomeranging and becoming a geopolitical weapon.

With the U.S.-China trade war intensifying, Chinese state media last week began floating the idea of banning exports of rare-earth elements to the United States, one of several possible Chinese responses to U.S. President Donald Trump’s decision to jack up tariffs on hundreds of billions of dollars’ worth of Chinese goods and blacklist telecoms maker Huawei.

U.S. oil refiners rely on rare-earth imports as catalysts to turn crude oil into gasoline and jet fuel. Permanent magnets, which use four different rare-earth elements to differing degrees, pop up in everything including ear buds, wind turbines, and electric cars. And China dominates their production.

“It would affect everything—autos, renewable energy, defense, and technology,” said Ryan Castilloux, the founding director of Adamas Intelligence, a strategic metals consultancy. China supplies about 80 percent of the rare-earth elements imported by the United States, which are used in oil refining, batteries, consumer electronics, defense, and more.

Those concerns became a lot more tangible this week when Xi, accompanied by his point man for U.S. trade talks, visited a facility in the heart of China’s rare-earths industrial complex. Xi called for a new “Long March,” a reference to one of the founding epics of the Chinese Communist Party, in its economic war with the United States. “There is always some degree of misinterpretation, but with the timing [of Xi’s visit] it’s our view that the optics suggest what they suggest, and that it is indeed” a veiled threat, Castilloux said.

This wouldn’t be the first time China has used its dominant position in rare earths as geopolitical leverage. In 2010, China sharply limited rare-earth exports to Japan, a big consumer, while the two countries were sparring over disputed islands. The embargo won China some short-term victories but also drove other countries to reassess and reduce their reliance on critical materials that Beijing controls.

 

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