Rare earth metals are essential to many high-tech products, and the US imports most of them from China. Does putting tariffs on them make any sense? From Tyler Durden at zerohedge.com:
While a closer read of the 200+ page schedule released last night by the Trump administration that listed all the exports captured by the $200BN in new proposed Chinese tariffs revealed some oddities such as badger hair, bovine semen, frog legs, flamethrowers, fetal bovine serum and blood, one product group stood out: rare-earths, an esoteric collection of minerals with strange names (Dysporsium, Europium, Neodymium, Lanthanum and Yttrium), which all have niche, high-tech applications and a history of scarcity. They’re used in everything from cell phones to hybrid vehicles to wind turbines and military hardware, which as Bloomberg writes suggests that the trade war is starting to hit its stride as a tech war.
But more importantly to the trade – or now tech war – is that China is effectively the only producer in size of these critical components that keep America’s high tech industry running.
Rare earths, which are also used in military applications, weren’t mined domestically last year, leaving the U.S. to rely entirely on supplies from abroad. According to the US Geological Survey, the country imported $150 million worth of rare-earth metals and compounds in 2017, a 27% increase from the prior year.
More notably, China accounted for 78% of the imports of the materials in 2013-2016. China also produced more than 80% of the world’s rare-earth metals and compounds in 2017, and has about 37% of global reserves, according to Bloomberg.
What is odd, is that by targeting rare earth metals, Trump could impair only the US tech sector, but end up damaging the broader economy: just last year we wrote that “Rare Earths Are China’s Most Potent Weapon In A Trade War“, and by imposing tariffs on China’s exports, not only will their prices soar for their end-users in the US, but if China is so willing, it could halt exports altogether, rerunning the 1983 oil embargo scenario… however using a far more valuable modern day equivalent to oil.
And, as Dan McGroarty – the founder of Carmot Strategic Group, a consulting firm that advises companies on rare-earth minerals and metals – told Bloomberg, tariffs on rare-earth elements “could be a significant pain point for the U.S.”
To continue reading: Trade War Becomes “Tech War” As Trump Cracks Down On China’s Rare Earth Metals