One week ago, President Xi and Vice Premier Liu He, China’s top trade negotiator, visited a rare earth metals mine in Jiangxi province. This has led to the rumor that China is seriously considering restricting rare earth exports to the US. China may also take other countermeasures in the future. The trade negotiations between U.S. and China got a lot more serious. It extends far beyond tariffs and intellectual property, it now involves strategic materials.
The first thing we must realize is that rare earth metals are not all that rare. They are a thousand times or more abundant than gold or platinum in the earth crust and easy to mine, but a little more difficult to refine. Thorium and Uranium will also be mined at the same time as the rare earth metals since they appear together in the ore.
U.S. used to be the major supplier of rare earth metals, which was fine up to around 1984. Then the U.S. regulators determined that Uranium and Thorium contained in the ore made the ore radioactive, so they decided to make rare earth metal ore subject to nuclear regulations with all what that meant for record keeping and control. This made mining in the U.S. unprofitable so in 2001 the last domestic mine closed down. China had no such scruples, such as human and environmental concerns, so they took over the rare earth metals mining and in 2010 controlled over 95% of the world supply, which was according to their long term plan of controlling the world by 2025.
The U.S. used to have a strategic reserve of rare earth metals, but that was sold off in 1998 as being no longer cost effective or necessary. Two years later the one U.S. rare earth metals mine that used to supply nearly the whole world, the Mountain Pass Mine in California closed down, together with its refining capacity. From that day all rare earth metals were imported. In 2010 it started up again together with the refining capacity but went bankrupt in 2015, closed down the refining but continued selling ore to China. They just announced they will start up refining again late 2020. Meanwhile China is slapping on a 25% import tariff on imported ore starting July 1. Rare earth metals may be in short supply for a while.
So, why is this important? Just take a look at all the uses for rare earth metals. The most sought after pays all the cost of mining and refining, and the rest are readily available at nominal cost.
The Chinese almost got away with it, and that is but one reason the trade negotiations are so complicated and hard fought, but necessary. Donald Trump fights for reciprocity and fair competition.