China’s Dominance in Rare Earths Makes U.S. Supply Chains Vulnerable
Introduction
In an exclusive interview with HaberTusba’s Martin Soong, U.S. Trade Representative Katherine Tai expressed concerns about China’s dominance in rare earths and its impact on U.S. supply chains.
The Significance of Rare Earth Metals
Rare earth metals are crucial components in high-tech products, including electric car motors. China’s strong processing capabilities in these metals have given it significant pricing power in the global market.
Tai emphasized that China’s position allows it to control the supply by turning the faucet on or off. Without diversified supply chains, the U.S. remains vulnerable to China’s leverage.
She highlighted a past incident where China raised rare earths prices, leading some U.S. mines to reopen temporarily before being forced to shut down again when China reduced prices.
The U.S. used to dominate the rare earths market before the 1980s, but due to lower labor costs overseas and less pressure on environmental standards, the industry shifted away from the U.S.
China’s Coordinated Industrial and Trade Policies
Tai pointed out that China’s dominance in rare earths is not merely a natural advantage. It stems from coordinated industrial and trade policies that have allowed China to corner the market.
The Chinese government sets economic plans every five years, with goals such as technological self-sufficiency and carbon neutrality. This top-down planning has enabled China to capture significant market share in the electric car industry and other supply chains.
The U.S. recognized its reliance on China-based manufacturing during the Trump administration, especially when the Covid-19 pandemic disrupted global supply chains in 2020. The Biden administration has initiated multibillion-dollar initiatives to encourage domestic development and manufacturing of critical technologies.
Tai emphasized the need for diversified supply chains and increased confidence in them to reduce vulnerability.
China’s Monopoly and Market Leverage
China holds a monopoly in the global rare earths market. Tai highlighted that China is also the sole buyer of Australia’s lithium production, giving Beijing additional market leverage.
Although lithium is not categorized as a rare earth metal, it is a key component in electric car batteries.
U.S. and European officials have expressed the need to reduce dependency on China and de-risk supply chains. However, Chinese Premier Li Qiang argued that global economic interests are too entwined for complete de-risking.
The ‘Phase One’ Trade Agreement
The U.S. and China signed a “phase one” trade agreement just before the pandemic, aiming to address the massive U.S. trade deficit with China. Tai stated that the U.S. is still assessing China’s progress in meeting purchase targets outlined in the agreement.
She also highlighted the imbalanced nature of U.S.-China trade, with the U.S. trade deficit rising by 8.3% to $382.9 billion in 2022.
U.S. Secretary of Commerce Gina Raimondo is scheduled to visit China to discuss trade issues.
U.S.-India Relations
Tensions between the U.S. and China have escalated in recent years, affecting trade, technology, and finance. Many businesses have started exploring opportunities in India, while the relationship between India and the U.S. has improved.
Tai also met with India’s Minister of Commerce and Industry Piyush Goyal to discuss concerns about India’s import license requirements for tech equipment.
Tai described the U.S.-India relationship as experiencing new heights and expressed potential for increased collaboration in economics and trade.