Trade tension between the United States and China is on the rise. When the United States announced it was seeking a World Trade Organization investigation into China’s clean energy export subsidies, China responded strongly. This past week, China took a bold step by delaying shipments of what are known as rare earths to the United States and much of the world including Japan and Europe. Rare earths encompass seventeen essential elements which have unique phosphorescent and magnetic qualities. They are valuable elements with extensive use in high technology and military industries. China chose to heavily invest in rare earths during the 1980’s. Deng Xioping said it would be China’s oil. Meanwhile, the United States cut production due to cheaper products available overseas and environmental concerns.
Nevertheless, the conflict’s true global depth is debatable. On the one hand, China provides 95% of the world’s rare earth materials. As such, one argument is that Chinese control over rare earths poses a national security risk to the United States. Furthermore, it could be an economic problem because rare earth demand is expected to grow by 125,000 tons as the electronics industry grows. On the other hand, this is likely a brief exercise of muscle and China’s strength in the market is arguably less pervasive. China controls only 35% of the globe’s rare earth. Recently, India and Vietnam have been expanding their capacity and are likely to shrink China’s market share by 15% in the near future. Additionally, the United States could start up production within three to five years by reopening closed mines.
Either way, concern reaches beyond the United States. Germany, a nation with a strong technology industry, is sponsoring a conference which will focus primarily on the rare earth issue. German Chancellor Angela Merkel has stated that Europe needs to increase its rare earth mining capacity. While the current tensions would be wrongly described as a trade war, it is certain that China’s economic clout is showing.