Comment: China threatens to reduce rare earth production, but may not bite

BEIJING: Did the gloves come off?

Chinese President Xi Jinping visited a rare earth treatment facility last Monday (May 20), a sign that many observers said was a signal that the country was sending was also able to take advantage of the US-China trade war that He was ready to use.

But it was not until Wednesday (May 28) that the signal became stronger, after a harsh comment from the People's Daily titled The United States, Do not underestimate China's ability to cope with the strike. has been published and picked up by many other media around the world.

The scene for escalating tensions between Beijing and Washington has been prepared, as both parties are tempted to bidding up to try to strengthen their position in preparation for the next meeting of Xi and Trump at the G20 and avoid look like the weakest part.

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It is perfectly understandable that China wants to retaliate after the United States has placed Huawei, the crown jewel of the burgeoning Chinese technology sector, on the list of entities.

However, any effort to destroy the White House could cause long-term and irretrievable damage not only to the Chinese economy, but also to the global economy.

CLOSE CONTROL ON THE RARE LANDS OF THE WORLD

China holds the world's largest reserves of rare earth minerals, with estimates ranging from 80 to 95 percent of global supply. These minerals are essential to the manufacture of many high-tech products, including mobile devices, electric vehicles and even advanced military weapons, such as F-35 guided missiles.

At present, China produces about 80% of the world's supply of rare earths imported by the United States. Australia is ranked second, producing almost everything else. China produces rare earths at 120,000 metric tons a year.

Given the circumstances, Beijing may well be a blow to the feelings of the US market by threatening to stop the sale of rare earths to the US manufacturing sector.

Concrete action could also be done quickly in a few months if the wheels are set in motion.

In fact, China has already fired a second salvo. Earlier this week, a senior official from the China Development and Reform Commission (NDRC), one of the country's most powerful government agencies, said the Chinese people would not be happy if China continued to supply its countries with products. made from rare earths to "suppress and curb the development of China".

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A spokesman for the NDRC, however, later noted that US defense subcontractors had large orders for rare earths. He said Beijing would maintain the principles of "openness, coordination and sharing" in the development of its rare earth industry, even if it was to give priority domestic demand.

JAPAN & # 39; S NEWFOUND – RARE LANDS, DEPOSITS: GAME CHANGER

Nevertheless, China's interruption of rare earth sales will only cause temporary suffering in the United States and will encourage US manufacturers to be more aggressive in finding alternatives.

In addition to Australia, Brazil, Vietnam and India are potential alternative sources.

Estonia and France already supply processed rare earth minerals to the United States, and the United States was one of the largest producers of rare earths until the 1980s. Nevertheless, diversification will take of time, negatively affecting the rare earth dependent sectors.

Japan could also win a crucial victory. Japan had discovered in 2018 a "semi-infinite" deposit of rare earth minerals about 1,200 km southeast of Tokyo, on the island of Minamitori, which means that Japan held the exclusive right over these resources.

A study of mineral deposits suggests that the country has enough resources to last the "centuries" of the world. It is thought that there is enough yttrium to meet world demand for 780 years; dysprosium for 730 years; europium for 620 years; and terbium for 420 years.

"This is a game changer for Japan," said Jack Lifton, founding director of Technology Metals Research, in Business Insider.

The race to develop these resources is well under way.

REPOSITIONING AND REALIGNMENT

In this context, the four-day visit by US President Donald Trump to Tokyo a few days ago may have been more crucial than previously thought.

It was the most favorable time. Japanese Prime Minister Abe Shinzo welcomed the US President and Trump was the first foreign leader to meet the new Japanese Emperor Naruhito at the Imperial Palace.

The Japanese public praised Trump's presence when he attended a sumo match with Abe and presented the champion with the President's trophy, which the Japanese called the Trump Cup.

While the cordial allusions to the visit might have pleased any world leader, what was remarkable was that Trump reiterated his tough stance on Japan and its agreement to delay US trade negotiations. Japanese.

The speculation is that American allies like Tokyo could reposition themselves to get out of the Washington trade line of sight and align better with those of the United States in order to help it in its demarches against China, because cracking down on China is a dominant position for the American public and its government. support.

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There is no doubt that Japanese companies could pull a whirlwind of negotiations with US companies.

It is in this context that Trump's meeting with Japanese business leaders, including companies from the technology and automotive industries, at the US Ambassador's residence in Japan. , William Hagerty, last Saturday, is even more significant.

At the same time, Sino-Japanese relations have warmed in recent months, with senior government officials from both countries meeting more often face-to-face, especially in anticipation of Xi's visit to Osaka for G20.

Their flourishing relationship is also strategic for China. While China is trying to limit the damage that the United States can inflict on its economy, strengthening cooperation with other major trading partners can help provide the necessary protection.

While the United States and China continue to tackle trade issues, other countries in the Asia-Pacific region, such as Japan, need to tread a cautious path, balancing the two great powers, playing useful roles and taking care not to take sides. Japan's entry into the rare earths sector could generate huge revenues and profits for Japanese companies.

And while the international media may point to China's potential leverage in rare earths, it is worth keeping in mind that the US has alternative markets to which it could turn.

Reducing the supply of rare earths to the United States might seem like a strong move on the part of China, but it could be a Pyrrhic victory if Japan became a player. more important on the world market of rare earths.

Tom McGregor is an Asia-Pacific business commentator based in Beijing.