China’s Communist Party newspaper warned the United States on Wednesday that the country is ready to use rare earths to strike back in their bitter trade war, saying in an extremely strongly worded commentary ‘don’t say we didn’t warn you’. Chinese President Xi Jinping’s visit to a rare earths plant last week fueled speculation that China would use its dominant position as an exporter of rare earths to the United States as leverage in the trade war, report agencies.
Rare earths are a group of 17 chemical elements used in everything from high-tech consumer electronics to military equipment.
The prospect that their value could soar as a result of the trade war caused sharp increases in the share prices of producers, including the company visited by Xi. While China has so far not explicitly said it will restrict rare earths sales to the United States, Chinese media has strongly implied this will happen, including remarks from the editor of influential paper the Global Times on Twitter late on Tuesday.
In a commentary headlined “United States, don’t underestimate China’s ability to strike back”, the ruling Communist Party’s official People’s Daily noted the United States’ “uncomfortable” dependence on rare earths from China. “Will rare earths become a counter weapon for China to hit back against the pressure the United States has put on for no reason at all? The answer is no mystery,” it said.
“Undoubtedly, the US side wants to use the products made by China’s exported rare earths to counter and suppress China’s development. The Chinese people will never accept this!” the paper added. The industrial chain between China and the United States is highly integrated and highly complementary, and there are no winners in a trade war, it said.
“We advise the US side not to underestimate the Chinese side’s ability to safeguard its development rights and interests. Don’t say we didn’t warn you!”
The expression “don’t say we didn’t warn you” is generally only used by official Chinese media to warn rivals over major areas of disagreement, for example during a border dispute with India in 2017 and in 1978 before China invaded Vietnam.
China has used rare earth sales to exert pressure in past diplomatic disputes. In 2010, Beijing cut rare earth export quotas after a Chinese trawler collided with two Japan Coast Guard ships near uninhabited islands in the East China Sea that both countries claim. In 2012, Japan, the United States and European Union complained to the World Trade Organization (WTO) over the restrictions. Two years later, China was rebuked by the WTO for citing environmental reasons to justify the quotas. It ultimately scrapped its export quota system after losing the case.
Chinese trade experts say if Beijing moves forward with new restrictions on rare earth exports to the United States, it will likely follow Washington’s example and use national security as a justification. China has repeatedly criticized Washington for what it says are abuses of national security exceptions at the WTO, including this week when, according to media reports, it accused the United States of breaking rules by blacklisting Huawei Technologies Co Ltd, the world’s largest telecom network gear maker.
But China for years has used national security considerations to block major US technology companies, including Google and Facebook, from operating in its market. Such restrictions have in recent years fueled calls from within some parts of the US business community for Washington to pursue more reciprocal policies with Beijing.
Shares in the company Xi visited last week, JL MAG Rare-Earth Co Ltd, surged another 10% to a record high on Wednesday, having gained 134.1% in May alone. China Rare Earth Holdings Ltd soared more than 20%, while Australia’s Lynas Corp, the only major rare earths producer outside of China, climbed as much as 12.1%. China accounted for 80% of rare earth imports between 2014 and 2017 by the United States, which has excluded them from recent tariffs along with some other critical Chinese minerals.
Beijing, however, has raised tariffs on imports of US rare earth metal ores from 10% to 25% from June 1, making it less economical to process the material in China. Some trade analysts expect an acceleration in bringing fresh rare earth mining capacity on line in California and Australia if China uses its dominant position in the market for diplomatic advantage.