China Takes a Page Out of Prez’s Playbook for Rare Earth Elements
The president has been trying to pressure China by implementing restrictions on trade. Whether that is massive tariffs on many products US companies import from China or banning, on and off, the sale of chips and chip making equipment to China.
Apparently, Xi Jinping can read the newspapers and figures if that works for the US, it will work for China.
So, this week, ahead of a summit that both leaders will attend at the end of the month, the Chinese leader is using the president’s tactics against him.
This is important because China controls 90 percent or so of the global rare earth mineral processing industry.
Rare earths and the magnets that come from them, are used in everything from kid’s toys to cars to defense weapons to fighter jets. Without rare earth’s the whole thing shuts down.
So here is what China did this week.
The new rules prohibit the unauthorized export of technologies used in rare earth mining, smelting and separation, magnet making, and recycling, as well as the assembly, debugging, maintenance, repair, and upgrade of related production lines, according to the Chinese Commerce Ministry.
This is basically a page from the US playbook of blocking the export of chipmaking hardware and software to China.
The list of restricted items now includes rare earth material and equipment that contain Chinese components.
They are also refusing to issue export licenses to companies that are considered “dual-use” (meaning military and civilian). This will block the export to companies that accept contracts from the Defense Department, similar to US restrictions on designated EAR items. EAR restrictions require companies to get a license to export “dual-use” items and are generally not granted to companies that want to sell to places like China. I have had to obtain these licenses from the US Department of Commerce in much less turbulent times and even then, they took months and months just to obtain a single license.
The regulation bans the export to end users involved in the “design, development, production and use of weapons of mass destruction and their means of delivery”. This mimics language that the US uses.
The regulation also says that China will have to review on a case-by-case basis all export applications for items used in the research, development and production of 14-nanometer or more advanced semiconductors and advanced memory chips. State of the art in chip making is 5-nanometer, so this includes pretty much any chip currently being made.
This includes technology used in the research and development of artificial intelligence with potential military applications – which, if you include potential use, includes ALL AI.
China, mimicking US language, says this is to safeguard its national security.
The president would like to make the US less dependent on China for rare earth raw material, processing and manufacturing of products like magnets. I think that is a great goal. However, this will take years and some people say decades to pull that off at any scale that will make a difference.
So, for now, ahead of the two leaders meeting, this is a negotiating position on the part of China. Purely a bargaining chip. What are you willing to trade for me dialing this back? Same as the president saying what are you willing to trade for me reducing import tariffs.
The president can increase tariffs as a weapon, but that gun doesn’t have a lot of bullets in it any more, so to speak. China has already realized that it has to diversify its customer base and while its economy is hurting from the tariffs, no one in China who values their life would dare say that the emperor has no clothes.
This means that any trade deal will likely require concessions that the president won’t like, so it will be a bit of poker and bluff. Stay tuned.
In the short term, depending on how long it takes to strike a deal, this could be a big problem for US businesses – both those who buy items based on rare earths from China and companies that buy end products that depend on them – which is pretty much everyone. A lot depends on how much an individual company has stockpiled – both producers and consumers. If it lasts that long, it could affect what you see for Christmas on store shelves. Credit: MSN
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