China may squeeze supplies of rare earth material to tame US

Trade tensions between the US and China are on the verge of becoming an all-out war, with both sides now seriously considering moves to weaponize each other’s access to critical rare earth materials and financial flows, say analysts.

After the prohibitions imposed by the Trump administration on Chinese telecom giant Huawei last week, Beijing has indicated it could choke the supplies of rare earth material to the American hi-tech sector. A senior Chinese official of the National Development and Reform Commission (NDRC) made it known on Tuesday that China will not tolerate foreign hi-tech products made from rare earth material produced in China. “If anyone wants to use the products made from the rare earths exported by China to contain and suppress the development of China, I think the people of the old revolutionary base in the South of the Jiangxi province and the people of China will not be happy,” the official reportedly said.

Companies in hi-tech areas, especially information and technology sector, need vital rare earth materials for production of various items, including mobile phones. The US had won a trade dispute against China when Beijing had imposed export restrictions on 17 rare earths, tungsten and molybdenum at the WTO over five years ago.

But, in the worsening trade war involving unilateral trade measures imposed by the Trump administration on Chinese products, Beijing has suggested that it could also impose unilateral restrictions by choking access to the supplies of rare earth material.

As global stocks dropped on Wednesday due to the rapidly deteriorating trade tensions between the US and China, there was mounting concern on Wall Street that China’s purchase of US treasuries could be adversely affected if the trade war persisted. The US along with the EU and Japan are part of the trilateral process agreed in Paris on 23 May to frame new rules against China’s industrial subsidies and forced transfer of technologies.

On the financial front, China, which holds more than $1.3 trillion of American debt in the form of US treasury bonds, could induce volatility if it even modestly sells its holdings just to cause ripples in the market, say several news reports in the American media.

Meanwhile, the US has shored up its alliance with the European Union and Japan to intensify its trade war with China—but that is increasingly becoming costly for the US farm and technology sectors. “But as we have heard from our farmers, they do want us to find a path forward with China. The tariffs are hurtful now, but the President will continue negotiating. We hope that we can get a deal soon,” US Republican senator Joni Ernst from Iowa told the CNN on 26 May.

Across the US midwest, there is growing concern among American farmers that the trade war will not see any immediate breakthrough. “It is a very tense time,” Ernst said, pointing out that though farmers want an agreement with China soon, it is not going to happen in the summer.

In a package to help farmers, the Trump administration on 23 May said it would provide $16 billion to offset the losses from the 10-month trade war with China.

“The farmers have been attacked by China,” Trump said at a press conference. “But the $16 billion of funds will...make clear that no country has veto on America’s economic and national security.”

Even in the tech sector, according to a report in the New York Times (NYT) on 25 May, the Trump administration’s ban against Huawei had adversely affected the operations of “wireless carriers in several countries, including Britain and Japan”. “But perhaps nowhere will the changes be felt more acutely that in rural America, where wireless service is spotty, despite years-long government efforts to improve coverage. They also add to the economic uncertainty created by the White House’s trade war with China. Farmers are fearful of an extended hit to their exports.”