China’s lock on rare earths dictated path to trade truce

China’s dominance in minerals essential to hi-tech goods has become a formidable advantage in trade negotiations with the US.

Rare-earth materials are crucial in the production of a vast array of technology. Picture: Katie Hayes Luke / WSJ

WASHINGTON: China’s chokehold on supplies of minerals essential to hi-tech goods from electric vehicles to jet fighters has become a formidable advantage in trade negotiations with the US.

President Donald Trump said on Wednesday that the US and China had agreed on terms for a truce on trade. The framework for the deal, which officials from the US and China negotiated over two days in London this week, hinged largely on access to China’s exports of rare-earth magnets, coin-sized components that are indispensable for powering car motors, industrial robots and missile-guidance systems.

China’s decision this year to cut back on exports of the magnets for just a couple of months sent shockwaves through the global auto, electronics and defence industries.

That helped drive the US and China back to the bargaining table this week. China wanted the US to lift export restrictions on technology including aviation parts in exchange for US access to the rare-earths components.

China said it established export controls to regulate the supply of “dual-use” materials that can be used by militaries.

New export licences were issued in limited quantities to some Chinese magnet companies for certain non-US clients including Volkswagen, and even some US companies, sources said, but many companies around the world struggled to get enough magnets.

Australia’s Lynas Rare Earths recently opened a plant in Malaysia to process strategically crucial “heavy” rare earths, which will provide a rare alternative source to China. “The Black Swan event has materialised,” Lynas CEO Amanda Lacaze said in April.

While this effort could provide an important backstop for strategic industries, over the near term China will maintain a firm grip.

The Wall Street Journal