Chinas secret tariff weapon


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The blossoming trade war that President Trump has insisted has been going on during the last three presidential administrations, albeit a one-sided trade war with China winning all the battles, is reaching a fever pitch with both countries unveiling their lists of items projected for 10-25% tariffs. There was one set of items not listed by name on any tariff list but nonetheless will have an immense impact on the future of American-Chinese trading. That set of items are Rare Earth Elements, the set of 17 tongue-twisting elements comprising the Lanthanide series plus Scandium and Yttrium. These elements are represented by #57 -71 on the periodic table and play an ever increasing role in the technology that shapes our modern life.

Rare Earth Oxides

Rare Elements aren’t particularly rare by any means, they are found in varying quantities around the world but the inherent difficulties stem from their separation (from each other as well as the ore bodies they are found in) and processing from Rare Earth Oxides (REOs) to Rare Earth Metals (REMs). These elements are only useful in their metallic state and it’s quite an environmentally non-friendly process to produce metals. In the 1980s and 90s the US (and other western countries) were more than happy to send rare earth ore to China whereby due to their lax environmental laws, they soon became a centralized (read monopolistic) producer and supplier. At the time, most of these elements were seen as chemical novelties and not a lot of R&D had gone into their potential.

Fast forward a decade or two and the rise of REMs in use has risen exponentially as their wonderous chemical and physical attributes were discovers. One clear example is the smartphone, to be able to pack that much technology and computing power into a case that fit in your hand, on top of a state of the art camera and touch screen is only due to the use of REMs. That’s just one example, here’s a few more industries beholden to rare earths: automotive, green energy, telecommunications, anything containing a laser, high strength magnets, and I could go on and on.

The Chinese monopoly on rare earths stretches far beyond our cars and consumer electronics, it delves deeply into our military defense systems, into almost every aspect of our modern military, from laser guidance systems in smart bombs to active radar, jet engines, night vision and over the horizon visional aids, and on and on. In 2016 the Government Accounting Office (GAO) issued a report that called China’s monopoly on rare earths a “bedrock national security issue,”

If this  trade war, no matter who started it, becomes an all out slugfest, China will have in its arsenal the tools needed to cripple industrial American technology production at the flip of a switch. They’ve shown that they are prepared to use this tactic in the past, in 2011 China temporarily blocked all exports of REMs after a dispute with Japan in the South China Sea. Although the financial impact based solely on Rare Earths will be de minimis in an overall trade war, it’s the trillions and trillions of dollars’ worth of goods dependent on these minerals that will cause the greatest harm to our 21st century industrial output as well as the military technological advantages we now employ around the globe.

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