[Source/Observer Network Xiong Chaoyi] "China's success in the rare earth supply chain has changed the balance of power in trade negotiations."
Local time on June 8, the Financial Times, around this view, while citing analysts and business people reported that China holds the dominant position in the critical mineral supply chain. After US President Trump imposed aggressive tariffs, China introduced a series of rare earth export controls, which not only put pressure on the US side but also provided China with leverage for bargaining with the US. It further indicates that China has the ability to implement export control measures on a wider range of key commodities.
Analysts pointed out that export controls not only helped China counter the United States but also struck those third countries that took a tougher stance against China under US pressure. After discovering the leverage effect in rare earth export controls, China can replicate this method to other areas of high-tech supply chains, such as: targeting possible further tightening of chip controls by the US side, including materials such as titanium, magnesium, and light rare earths in the export licensing system.
In addition, China also has dominant positions in the production of new super-strong magnets, transistors, batteries, new chips, and software, building a "strong industrial collaborative ecosystem" in electric vehicles, autonomous driving cars, drones, robots, sensors, smartphones, etc., as well as corresponding semiconductor, battery, and artificial intelligence technologies. "The leverage is rapidly tilting in favor of China, and Trump and his team have just begun to realize this fact," said an analyst.
Rare earths waiting for export in Lianyungang, Jiangsu Province. Reuters
On April 2 this year, the Trump administration of the United States imposed so-called "reciprocal tariffs" on the world, with tariffs on China as high as 145%.
Following this, China immediately introduced a series of targeted countermeasures. In addition to increasing tariffs, it also implemented export control over seven categories of heavy rare earth-related items including samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. The Financial Times cited industry insiders at the time, revealing that China was establishing an export licensing system. Last December, China also announced strict control over dual-use items such as gallium, germanium, antimony, ultra-hard materials, and graphite exported to the US.
Experts believe that China's recent export control measures have tilted the "balance" of the power in US-China trade negotiations toward Beijing.
Andrew Gilholm, head of China analysis at risk consulting firm Control Risks, said that export controls not only help China counter the United States but also help strike those third countries that take a tougher stance against China under US pressure.
"The simple fact is that we lack precedents for this. Export controls are an ideal tool for Beijing, which they can adjust, tighten, or relax, making them applicable to all countries or a single country," Gilholm said.
The Financial Times reported that analysts believe that the danger facing the US and the EU lies in the fact that the leverage effect discovered by China in rare earth exports may also be replicated in other areas of high-tech supply chains, while both the US and the EU have triggered and become embroiled in trade disputes with China.
An analysis report from consultancy Trivium China pointed out that if China wishes to respond to possible future escalations (such as further tightening of US chip controls), it can restrict the flow of materials such as titanium, magnesium, and light rare earths, which have not yet been included in the new export licensing system.
Arthur Kroeber, research director of consultancy Gavekal Dragonomics, said in a report to clients that China also dominates the production of new super-strong magnets, higher-performance transistors, denser and cheaper batteries, as well as new chips and software. He also mentioned that China has built a "strong industrial collaborative ecosystem" in the fields of electric vehicles and autonomous driving cars, drones, robots, sensors, smartphones, etc., as well as the semiconductors, batteries, and artificial intelligence technologies powering these products.
"The leverage is rapidly tilting in favor of China, and the Trump team has just begun to realize this fact," he added.
In 2023, China accounted for more than 60% of global rare earth production and 92% of refined supply. CNN map
Recently, Reuters reported, citing three sources, that as part of its export control policies, China has introduced a tracking system for the rare earth magnet industry. These informed sources revealed that China's tracking system came into effect last week—requiring producers to submit additional information online, including transaction volume and customer names.
According to informed sources, China announced plans to establish a rare earth product information tracking system last June, but it was only mentioned again last week. The report suggests that this additional review indicates that China's export controls on rare earths and related magnets could become long-term policies, given China's near-monopoly position in production in these areas.
A survey conducted by the American Chamber of Commerce in China in late May showed that more than three-quarters of companies affected by rare earth controls can only maintain inventory reserves for three months, highlighting the precarious situation many factories face.
The European Union Chamber of Commerce said that the number of export license applications considered "most urgent" has recently increased, but EU businesses continue to struggle with various difficulties in the application process. A businessperson said it is unclear whether China intended to target Europe.
At the same time, the slowdown in China's export license approval process has triggered several emergency bilateral negotiations and has given China greater influence in other disputed areas. According to informed sources, in recent weeks, Japan, South Korea, and some EU member states have directly raised issues regarding rare earths in Beijing.
The Financial Times reported that countries are now strengthening their determination to reduce reliance on China's industrial supply chains. However, Tom Nunlist, deputy director of consultancy Trivium China based in Shanghai, said that China's current export controls have proven "highly effective" and are likely to continue because countries cannot simply "mine and set up refining operations overnight." He added, "What China needs to figure out first is how to use its already powerful firepower more precisely."
According to a June 7 message from the Ministry of Foreign Affairs website, the spokesperson announced that in response to an invitation from the British government, Politburo member and Vice Premier of the State Council He Lifeng will visit the UK from June 8 to 13. During this period, the first meeting of the US-China economic and trade consultation mechanism will be held with the US side.
On the same day, a spokesperson for the Ministry of Commerce answered questions about China's heavy rare earth export control measures, stating that rare earth-related items have dual civilian-military attributes, and implementing export controls on them is consistent with international practices. China legally implements export controls on rare earth-related items to better safeguard national security and interests, fulfill international obligations such as non-proliferation, and demonstrate its consistent position of maintaining world peace and regional stability.
The spokesperson noted that we have noticed that with the development of industries such as robotics and new energy vehicles, the demand for medium and heavy rare earths in civilian sectors is growing continuously. As a responsible major country, China fully considers the reasonable needs and concerns of all countries in civilian fields and reviews export license applications for rare earth-related items according to law. A certain number of compliant applications have been legally approved and the approval work for compliant applications will continue to be strengthened. China is willing to further strengthen communication and dialogue with relevant countries on export controls to promote convenient and compliant trade.
This article is an exclusive contribution from Observer Network and cannot be reprinted without permission.
Original source: https://www.toutiao.com/article/7513793370133627407/
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