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U.S. Military Braces for a Cutoff of Rare Earths by China

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In recent issues of Five Links, I’ve expressed my estimate that China will not cut off exports of rare earths to the U.S. as a way of fighting the trade wars. (Rare earths are metallic elements than can be used in pure form or combined to produce critical components for electronics and automobiles. They are not “rare” but they are found in small concentrations, which makes them expensive and difficult to produce in large quantities. China is the source of almost all rare earths used in the world today.)

The reasons China will not resort to an export ban are that substitute rare earth production from other countries could be brought online easily and retaliation by the U.S. would be swift and fierce. Once China loses the rare earth export market, they will not get it back and they know it.

That said, China is repeating the threat and one cannot rule out an export ban. According to this article, the Pentagon is already taking steps to line up alternate sources of supply. The U.S. military may even place some orders for rare earth exports from countries other than China just to test the alternatives and blunt the threat from China in advance.

It may be difficult to know if China will or will not actually cut off rare earth exports. It is not difficult to know where this is all headed.

The trade wars are rapidly escalating in unexpected ways. Let’s hope the struggle is confined to trade and does not spill over into finance and capital markets, or even into a shooting war. History does not offer much comfort on this front.

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