You’ve heard about “rare earths.” These are 17 chemical elements with names including cerium, erbium, europium and other little-known metals.
Certain rare earth minerals are formed from combinations of these rare earth elements. Despite the designation as rare earths, they are not actually that rare. In fact, some are quite plentiful in the Earth’s crust.
Some are far more plentiful than copper. The “rare” designation comes from the fact that while they may be plentiful in quantity, they are found in extremely low concentrations. This means a huge amount of ore and expensive mining processes are needed to extract even a small amount of these substances.
While they have had various uses over the decades, rare earths today are critical in the manufacture of fuel cells, nickel-metal hydride batteries, plasma screens, fiber optics, lasers and other high-tech applications. Electronic vehicles, mobile phones and telecommunications systems would be impossible to build without them.
China is responsible for 90% of global production, which makes them a potent weapon in the U.S.-China trade wars. The U.S. dominates the trade wars because we import far more from China than they import from us, which means China cannot match the U.S. when it comes to tariffs.
China cannot dump their Treasury note holdings on the markets without devaluing their own position and risking an account freeze by President Trump. As a result, China must use more unconventional weapons.
According to this article, China is now threatening to cut off rare earth exports to major users such as Japan and South Korea, both allies of the U.S. Over time, Western powers can replace rare earths purchased from China, but there could be major manufacturing disruption in the meantime.
This is one more example of the unintended consequences of a trade war and how the consequences cannot be limited to just adding up tariffs on one side or the other.
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