China hits back at the United States

China dominates the global supply chain for rare earths and other essential minerals. It has about a third of the world's reserves of rare earth elements and 85 percent of the world's processing capacity.

The United States, although it has tried to reduce its dependence on China for essential minerals, still depends on it for about 54 percent of its germanium and more than 20 percent of its gallium. Much of the semi-processed materials it buys from other sources, such as Japan and South Korea, come from China.

Minerals targeted by China are used in everything from semiconductors to satellites, smartphones, solar cells, camera lenses and even bullets and shells. Further tightening of controls on graphite exports will impact electric vehicle batteries (China supplies about two-thirds of global graphite demand and 90% of the graphite used for electric vehicle batteries), steel and nuclear reactors, among other applications.

China's response will have an impact. The US Geological Survey said last month that a total ban on Chinese exports of gallium and germanium would wipe $3.4 billion from US GDP, with most of the impact (about 40%) centered on semiconductor device industry. .

If there were a total ban, gallium prices could rise by more than 150 percent and germanium prices by 26 percent, the statement said.

China has already weaponized its dominance over rare earths. In 2010, after a collision between Japanese coast guard vessels and a Chinese fishing trawler in disputed waters of the East China Sea led to the arrest of the trawler's captain, who Japan said had ramming its ships, China banned exports of rare earths to Japan. , alarming the Japanese, whose industrial base depended heavily on access to Chinese production.

Loading

Soon after, with funding from the Japanese government, a Japanese trading house entered into an alliance with Australia's Lynas Corp to accelerate the expansion of its rare earths project at Mount Weld, Western Australia.

Chinese dominance over critical minerals has been a clear point of vulnerability for the United States and its allies since the first Trump administration launched the trade war with China in 2018.

The Biden administration and U.S. allies like Japan, South Korea, the European Union and Australia have all developed plans to reduce their dependence on China. There are massive incentives in Biden's flagship inflation-reduction legislation for increased supply from domestic sources and support from his allies.

China's large trade surplus with the United States for the first 10 months of this year stood at $785.3 billion and its semiconductor technologies lagging behind those of the United States -United means that it cannot respond conventionally to US trade sanctions by simply matching them.

Donald Trump, the man of customs tariffs, will return to the White House in January, surrounded by China hawks. If he keeps his promise to impose 60 percent tariffs on imports from China, imposing similar tariffs on the roughly $145 billion in U.S. exports to China would be a relatively weak response.

This is why China's response to the latest US restrictions is a glimpse of a future where China will pursue asymmetric warfare, surgically targeting America's most obvious vulnerabilities by deploying its most strategic assets.

The lead author of the US Geological Survey analysis, Nedal Nassar, defined China's strategy very well.

Losing access to essential minerals that represent only a fraction of the value of products like semiconductors can amount to billions of dollars in losses across the world. [US] the economy, he said.

The speed with which China revealed its tit-for-tat response is unusual.

There would be a lot of money for not so much money if China expanded its ban on exports of critical minerals to the entire range it dominates and, as the United States has done with its controls exports, used the threat of bans to coerce American allies. to supply the United States with semi-processed materials of Chinese origin.

As a bonus, while limiting the United States' access to minerals essential to advanced technologies, it would of course retain its own access to these minerals.

While leaving Trump's first-term tariffs in place, the Biden administration has focused almost entirely on limiting China's access to the building blocks of the most advanced technologies, primarily advanced chips and tools to make them.

China would be hit hard if Trump follows through on his threat to impose punitive tariffs on all its exports, but between the likely Chinese retaliation and the impact of those tariffs on U.S. businesses and consumers who would pay for these tariffs, either through an increase in prices, and/or lost access to certain raw materials, products or essential components, the United States would not escape the consequences of a full-scale trade war.

Loading

Trump's belief that trade wars are good and easy to win may well be tested more severely in his second term than in his first term. Large-scale attacks on its exports are proving effective.

The Business Briefing newsletter features major stories, exclusive coverage and expert insights. Sign up to receive it every weekday morning.