Rare Earths: China's Competitive Advantage In The U.S. Trade War

With Meghna Chakrabarti

Rare earth minerals are essential to everything from cellphones to hybrid cars. China’s got them and could use them as leverage in the trade war with the U.S.

Steve Liesman, senior economics reporter for CNBC. (@steveliesman)

Justina Vasquez, covers commodity markets for Bloomberg. (@helloimjustina)

Eugene Gholz, rare earth specialist and associate professor of political science at the University of Notre Dame (@NotreDame). Former engineer who specializes in the intersection of the economy and national security.

Jim Kennedy, president of ThREE Consulting, which provides services related to rare earths and thorium within U.S. regulation. He owns the Pea Ridge Mine near Sullivan, Missouri, and advocates for a U.S.-based cooperative to make the country and its allies self-sufficient in the refinement of rare earth minerals.

Bloomberg: "Why Rare Earths Could Give China a Trade War Cudgel" — "U.S. President Donald Trump’s threat to cut off the supply of chips and processors to Huawei Technologies Co. is hitting China’s biggest tech company where it hurts – its dependence on other nations for the semiconductors and software used in smartphones and networking gear. So when China’s President Xi Jinping showed up days later at a rare earths processing plant, many observers saw a message in the visit: the U.S. has its own tech vulnerabilities, too."

Bloomberg: "China Pulls Punches With Trump to Defend a Path for Trade Talks" — "As China looks to face down President Donald Trump, its leaders find themselves in a bind: How can they show him they won’t be pushed around without wrecking hope for a deal?

"Facing a slowing economy at home and Trump’s unpredictability, Beijing has used state media to blast American policies and obliquely hint it could cut off the U.S.’s supply of rare earths. All the while, it’s been careful not to provoke Trump further or risk worsening a rapidly deteriorating relationship.

"'They are struggling to find sources of leverage that will hit that sweet spot of inflicting pain without rupturing ties,' said Bonnie Glaser, a China specialist at the Center for Strategic and International Studies in Washington. '"Dou er bu po" is still the mantra,' she said, citing a Chinese phrase which means 'to fight without severing relations.'

"As China feels out the right response to Trump, it must weigh the president’s aims against the volatility of U.S. domestic politics, the financial markets and the strength of competing voices inside his administration. It must also decide what Trump means when he says he’s 'not ready' to make a deal with China, and whether his threshold for pain is shifting against the backdrop of a strong U.S. economy and signs of weakness in China."

CNBC: "If we can’t challenge China, no one can, warns operator of only US mine for rare earth metals" — "The only rare earth metals-producing mine in the U.S. is facing short-term refining challenges as the nation looks to reduce its reliance on China for the materials due to the trade war.

"China dominates the refining and mining of rare earth minerals, which are key to the making of everything from iPhones to rechargeable batteries to military weapons.

"'We’re it,' James Litinsky, co-chairman of MP Materials, which owns the Mountain Pass mine, said Thursday on CNBC’s 'Squawk Box. ' 'If we can’t be economic, there’s no hope for the U.S. industry.'

"Mountain Pass, located in California, ships nearly 50,000 tons of rare earth concentrate to China each year for processing, according to a Reuters report.

"'There’s no refining capacity in the world outside of China,' said Litinsky."

NBC News: "In U.S.-China trade war, rare earth elements (think smartphones) are latest flashpoint" — "Rare earth minerals are a common part of people's lives — and their futures.

"If you have a smartphone or computer, own a flat-screen TV, drive a hybrid car or use a myriad of other high-tech devices, you'll no doubt come into contact with these elements — mined from the earth's crust and supplied predominantly by China — countless times a day.

"But they are also used in obscure but powerful ways that ensure some of the biggest companies in the world can keep churning out those products.

"Now, rare earths have become a bargaining chip in the expanding trade war between China and the United States, which escalated after the Trump administration placed Huawei, the world's largest supplier of telecommunications equipment, on a blacklist that imposed some restrictions on trading with American companies."

Stefano Kotsonis produced this hour for broadcast.