China Threatens to ‘Weaponize’ Rare Earths in Trade War Escalation

China might “weaponize” its dominance of rare earth metals in an escalation of the trade war with the U.S., a state-controlled Chinese tabloid reported Tuesday.

Update: The Financial Times and others have confirmed the threat from China’s powerful state planner.

“China’s powerful planning body has threatened to use rare earths exports as leverage in the trade war with the US, in a sign of increasing tensions between the two powers,” the Financial Times reported.

Just over a week after a visit to a rare earths facility by Chinese leader Xi Jinping prompted speculation that China could attempt to use its near monopoly as leverage in the ongoing trade dispute, the Chinese nationalist Global Times reported that a statement made Tuesday by a government official “sends an implicit signal that China does not hesitate using rare earths as a weapon against the US amid the escalating trade war and US containment of Huawei.”

“If any country wants to use products made of China’s rare earth exports to contain China’s development, the Chinese people would not be happy with that,”  a spokesperson from the National Development and Reform Commission (NDRC), China’s state planner, said, according to the Global Times.

The report describes “scaling down” rare-earth exports to the U.S. as a “smart hit” to the U.S. economy, citing a so-called independent analyst named Wu Chenhui. U.S. companies depend on rare earths for a variety of consumer goods and military equipment, including cell phones, automobiles, and guided missiles. China controls 96 percent of global production of rare earths.

“It could inflict substantial damage on the US military and tech industry, as rare earths are a key material in manufacturing chips, radar, fiber optics, night vision goggles, missile guiding systems, and tank armor,” Wu tells the Global Times. “Just name a few big name US companies like Apple, Qualcomm and Raytheon… they could suffer a lot from the countermeasures.”

 

American Elements chief executive Michael Silver last week explained on CNBC that one way China could weaponize rare earths against the U.S. would be to “charge a much lower price within China than they price they are charging outside of China.” That would penalize companies that manufacture outside of China and discourage companies from moving production due to higher U.S. tariffs.

Silver points out that China did this in the past but was stopped by the World Trade Organization. He thinks China could be tempted to leave the WTO in the future and implement the discriminatory pricing once again.

The Global Times report appeared to indicate that discriminatory pricing would indeed be a way to weaponize rare earths.

“As the world’s largest supplier of rare-earth materials, China has always adhered to the principle of openness, synergy and sharing to promote the development of the rare-earth industry. On the one hand, we adhere to the principle that rare-earth resources give priority to domestic needs; on the other hand, we are also willing to meet the legitimate needs of countries around the world for rare-earth resources,” the NDRC official is quoted as saying.