[Text/Observer Network Wang Yi] Following the consensus reached last month between China and the United States on tariff issues, the two countries' standoff over chips and rare earth elements has become increasingly intense. In this tug-of-war where neither side wants to "blink first," Bloomberg reported on June 2 that China seems to be gaining an advantage.

The report stated that for many years, the U.S. was considered to have an edge over China in the competition for technological dominance due to its control over the semiconductor supply chain. Despite this administration under Trump showing no signs of loosening restrictions on chip exports to China, as China strengthens its control over critical minerals, the U.S. government has found that these measures are causing pain to key American industries. It may take several years to摆脱 reliance on Chinese rare earth materials.

"At this stage, China's influence is more enduring than that of the U.S.," said Cory Combs, deputy director of Trivium China, a consulting firm specializing in supply chain research. Combs noted that it will take the U.S. another decade to摆脱 dependence on Chinese rare earth materials, while Chinese companies have already developed effective alternatives for most American chips. "China is making progress in this standoff," he added.

Mt. Pass rare earth mine in the U.S., Visual China

In response to the U.S. initiating the tariff war in early April, China swiftly implemented export control measures on seven categories of heavy rare earth-related items including samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium. Subsequently, both sides reached a series of consensuses in Geneva, Switzerland, regarding economic and trade issues, with China agreeing to take necessary measures to "suspend or cancel non-tariff countermeasures against the U.S. starting from April 2, 2025."

However, recently, U.S. government officials have accused China of not easing its rare earth controls under the pretext of "China violating the Geneva consensus," using this as an excuse to refuse lowering tariffs. Over the past few weeks, the U.S. has also introduced several discriminatory measures against China, such as issuing guidelines for AI chip export controls, halting sales of EDA software for chip design to China, and revoking visas for Chinese students.

China firmly rejects the unreasonable accusations from the U.S. On June 2, a spokesperson for China's Ministry of Commerce stated that after the publication of the "Joint Statement on U.S.-China Economic and Trade Talks in Geneva," China canceled or suspended relevant tariffs and non-tariff measures related to the reciprocal tariffs against the U.S. The above actions by the U.S. seriously violate the consensus reached during the phone call between the heads of state on January 17 and severely undermine the existing consensuses of the Geneva economic and trade talks, as well as damaging China's legitimate rights and interests.

"We urge the U.S. to move in the same direction as China, immediately correct its erroneous practices, jointly uphold the consensuses of the Geneva economic and trade talks, and promote healthy, stable, and sustainable development of U.S.-China economic and trade relations. If the U.S. persists in harming China's interests, China will continue to resolutely take strong measures to protect its legitimate rights and interests."

Although China has adhered to its commitments and canceled or suspended relevant tariffs and non-tariff measures against the U.S. "reciprocal tariffs," Bloomberg reported that the flow of rare earth materials is still not fast enough. China's control over rare earth materials has already caused harm to some U.S. companies. Ford Motor Company temporarily shut down one of its factories in Chicago in May due to a shortage of rare earth materials.

"Export controls have become the core of China's supply chain warfare," the report stated. Nearly 70% of the world's rare earth materials are produced in China, and these metals are crucial for manufacturing key technologies such as fighter jets and nuclear reactor control rods. Critical minerals were seen as the next battleground between the two countries when the first Trump administration initiated its trade confrontation with China. In 2023, after the U.S. attempted to limit China's access to AI chips, China imposed export restrictions on gallium and germanium, which are used in semiconductor production.

Aware of China's influence in critical minerals, the U.S. has also taken some measures to strengthen its rare earth supply chain. The U.S. Department of Defense set a goal in its 2024 "Defense Industrial Base Strategy" to develop a complete rare earth supply chain by 2027 to meet all defense needs. Liza Tobin, managing director of the geopolitical risk consultancy Garnaut Global, also pointed out that the recent authorization by the Trump administration to expand export controls was a response to China's rare earth controls.

However, Bloomberg believes that factors such as a lack of commercially viable natural reserves, a shortage of engineers trained in mining techniques, and a limited number of companies capable of competing in the industry's slim profit margins pose challenges to the U.S.' ambition to establish a stable rare earth supply chain.

The Trump administration also hoped to leverage foreign capital to develop the U.S.' rare earth supply chain. During his recent Middle East trip, the only U.S. rare earth producer, MP Materials, signed agreements with Saudi Arabia's largest mining company to develop rare earth materials.

Reports indicate that although the U.S. can collaborate with Lynas Rare Earth, the largest rare earth producer outside China, and capacities are being built in Brazil, South Africa, Japan, and Vietnam, none of them can immediately provide solutions for U.S. companies. Hong Kong's South China Morning Post previously analyzed that the U.S. lags behind China by 20 years in heavy rare earth separation and purification technology. Even if the U.S. attempts to摆脱 dependence on China through "mineral diplomacy" and other means, it will be difficult to shake China's position in the short term.

"China still has cards up its sleeve," Bloomberg analyzed. So far, China's restrictions have mainly targeted medium and heavy rare earths, which are primarily concentrated in the defense sector. However, if China extends these restrictions to light rare earth elements like neodymium and praseodymium, it could cause greater damage to the U.S. economy, as these light rare earths are widely used in consumer goods.

China's current rare earth restrictions have already impacted relevant industries in the U.S. and some other countries. Last week, the Society of Indian Automobile Manufacturers (SIAM) reported that the rare earth magnet inventories of India's auto parts manufacturers are expected to run out by the end of May, with production in the Indian automotive industry likely to stall starting at the end of May or early June.

Bloomberg reported that battery and semiconductor manufacturers in Japan and South Korea are extremely dependent on China's rare earth supplies. If China cuts off these rare earth supplies to its U.S. allies, U.S. companies may face even greater hardships.

Neil Thomas, a researcher at the China Analysis Center of the Asia Society Policy Institute in the U.S., stated, "China's control over rare earths serves as a warning of further escalation. However, if U.S.-China relations worsen, China might then start causing real damage to the U.S. defense supply chain."

This article is an exclusive contribution by Observer Network and cannot be reprinted without permission.

Original source: https://www.toutiao.com/article/7511549639464583689/

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