China's Rare Earths Leverage in US Trade War: Big Take Asia

China's Rare Earth Dominance

• 💡 China has leveraged its decades-long dominance in the rare earths market to gain significant influence in trade negotiations with the US.
• 🎯 China controls approximately 70% of global rare earth supply and nearly all of the processing technology, making it a critical choke point.
• 🔑 The US previously led in rare earth production but allowed this industry to atrophy, leading to current dependence on China.

Weaponizing Rare Earths

• ⚡ China has introduced new export controls that could require licenses for products containing even a trace amount of rare earths, potentially disrupting global supply chains.
• ⚠️ This tactic, mirroring US export control strategies, gives China leverage to force concessions from the US in trade disputes.
• 🚀 The US responded by signing a deal with Australia to boost its own rare earth supplies and processing capabilities, aiming to counter China's advantage.

US-China Trade War Dynamics

• 📈 The trade war has seen escalating tariffs, with the US imposing significant duties on Chinese goods.
• 🤝 A tentative truce exists, with a key component being China's agreement not to disrupt rare earth magnet flow in exchange for reduced US tariffs.
• ⚖️ Both nations are developing strategies to reduce reliance on each other, focusing on areas like semiconductors, airplane parts, and critical minerals.

Strategic Implications and Future Outlook

• 🧠 China's export control law, enacted in 2020, mirrors the US's foreign direct product rule, allowing it to control products made with its technology or resources.
• ⚠️ The US faces a dilemma: retaliating with its own trade measures could harm its economy, limiting its options.
• 📉 The fundamental issue is that both economies are moving towards reduced interdependence, which does not foster optimism for a swift resolution to trade disputes.
• 🤝 Future meetings, like the one at the APEC summit, may focus on specific deals such as TikTok and soybean purchases, but broader national security concerns limit the scope for comprehensive agreements.