Center for Strategic Assessment and forecasts

Autonomous non-profit organization

Home / Politics and Geopolitics / China and its role in the new world order / Articles
China can retaliate using one of the greater vulnerability of the U.S.
Material posted: Publication date: 09-06-2019

Within a few months the foreign trade of the confrontation everyone was waiting for the return of China to the American pressure. In recent days it has intensified and there appeared the outline of how Beijing can cool the aggression of the protectionist States.

One option is to block China's export of rare earth elements in the United States that could potentially harm countless American supply chains, based on this raw material. It can cause painful and costly delays in the production cycle, because of the need to establish alternative routes of supply of rare earth materials.

The recent visit of the Chinese leader XI Jinping on an object rare earth production has lead to the assumption that strategic materials can be used as weapons of China in the trade war with the United States.

Shares of the manufacturer of products containing rare earths, JL MAG Rare-Earth Co. on Monday rose to an intraday restriction the maximum price after the statement of the state news Agency Xinhua that the Chinese President visited this company.

Official news outlets regularly report on such visits of senior management, which often leads to a sharp increase in the belief that these companies have received official support from the authorities.

However, such events can also indicate political priorities, and the factor of rare earth supply manifested itself in a growing trade dispute between the US and China. Asian country with a 10% to 25% raised duties on American imports, while the States have excluded rare-earth materials from its list of proposed duties on Chinese goods worth about $300 billion, which may be included in the next wave of protectionist measures.

Us imports of rare earth elements is 80% dependent on China, which is the dominant global supplier of these products. The trip to the factory JL MAG Chinese leader was accompanied by Deputy Prime Minister who headed the Chinese side in trade negotiations with the United States.

The visit "sends States a warning signal that China might use rare earths as a measure of retaliation in growing trade war," said an analyst with Pacific Securities Co. Yang Cunha. This can include restrictions on the export of rare earth elements in the United States, he added.

The confrontation between the US and China has intensified in the last few days after the administration of the trump on Friday blacklisted the company Huawei Technologies Co., accusing it of complicity in espionage, and threatened to cut off the Chinese IT giant from American software and semiconductors needed for production of products of Huawei.

Yesterday the representative the Ministry of foreign Affairs of China, responding to journalists, offered a "wait and see" how to react the company and the Chinese leadership. Although then the States have weakened these measures, giving Huawei a 90-day permit for the purchase of U.S. services and components, tensions around the relationship between the US and China remains high.

Restrictions on rare earth exports from China will harm including Chinese producers of the raw materials. However, these measures have the potential to help companies such as JL MAG, which produces magnets that contain rare earth elements. These products are used in many high-tech products, including electric vehicles and wind turbines.

"Given the export restrictions, the government may need to develop some measures to support domestic industry, because the industry of rare earth elements is also part of the advanced manufacturing plan for the country," said an analyst with Pacific Securities.

As for how this benefit can be used for ordinary investor, then you can consider funds that invest in shares of producers of rare earth metals. One such ETF is REMX.

The Fund during the first panic of rare earth materials, provoked the Sino-Japanese trade war, achieved in 2011 a record high of $114 USD. After that he steadily declined, down about 10 times.

So now his value is almost not considered a potential threat to the connectivity of this sector to the trade war. After all, if China blocks rare earth production in the United States, the cost of this raw material is able to take off dozens of times.


Tags: USA , China

RELATED MATERIALS: Politics and Geopolitics
Возрастное ограничение