BEIJING – China reportedly has halted the shipment of rare earth minerals to the U.S., in the latest sign of heightened economic tensions between the two super powers.
The rare earth minerals ban, first reported by the New York Times citing anonymous industry sources Tuesday, rattled investors and politicians who fear the Chinese are using their dominance the industry as a form of economic warfare.
Rare earth minerals are used in a wide variety of commercial and military applications ranging from precision guided smart bombs to efficient light bulbs to clean energy technology. It is said that over 50 pounds of rare earth metal can be found in a Toyota Prius automobile alone.
And China now controls an estimated 95 percent of the world’s supply of the precious raw materials.
Beijing quickly denied the reports that it halted exports Wednesday.
"Reports in certain media that China will continue reducing rare earth export quotas next year are entirely groundless and this is purely a mistaken report," China’s commerce ministry said in a statement, Reuters reported.
"China will keep supplying rare earths to the world, but will also continue imposing restrictions on the exploitation, production and exports of rare earths to protect these depletable resources," said the statement, adding that any limits would abide by global trade rules.
Whether or not the ban on exports to the U.S. is true, the fact that China could use its dominance of the world’s supply of the raw materials to project its power has raised alarm bells.
At one time, the United States was self-sufficient in its extraction and manufacturing of rare earth metals, but ceded much of that production to China during the 1990s.
A recent study by the U.S. Government Accountability Office confirmed the shift to Chinese dominance of the industry in chilling terms. “The United States previously performed all stages of the rare earth material supply chain, but now most rare earth materials processing is performed in China, giving it a dominant position that could affect worldwide supply and prices,” the GAO report read.
There are fears that China is now beginning to use their dominance of the industry as a blunt diplomatic instrument.
Just last month, Japan was slapped with a similar rare earth ban after the high-profile detainment of a Chinese fishing boat captain.
China has denied that it banned shipments of rare earth minerals to Japan. But it seems a de facto ban is in place since China has subjected rare earth shipments destined to Japan to a battery of pre-shipment checks that has grinded shipments to a halt at Chinese customs offices.
Paul Krugman, the New York Times op-ed columnist, called attention to the incident with Japan earlier this week, writing that he found the incident “deeply disturbing” for what it says about both the U.S. and China.
“On one side, the affair highlights the fecklessness of U.S. policy makers, who did nothing while an unreliable regime acquired a stranglehold on key materials. On the other side, the incident shows a Chinese government that is dangerously trigger-happy, willing to wage economic warfare on the slightest provocation.”
He wrote that China’s control of the industry has resulted in “a monopoly position exceeding the wildest dreams of Middle Eastern oil-fueled tyrants.”
The alleged export ban appears to be just the latest salvo in an escalating trade war between the U.S. and China.
Chinese custom officials reportedly began imposing restrictions on the export of the minerals on Monday morning, just hours after Zhang Guobao, a senior Chinese economic official, declared the U.S. “cannot win this trade fight,” during an unusual news conference on Sunday.
Zhang, vice chairman of China’s National Development and Reform Commission, was chastising the U.S. for an announcement that the United States Trade Representative’s office would investigate whether or not Chinese subsidies of manufacturers of green technology such as wind turbines, solar energy products and fuel-efficient vehicles is in violation of international trade rules. The dispute could escalate to the U.S. filing formal charges against China with the WTO.
Though the rare earth minerals ban and Zhang’s statement cannot be definitively linked, the announcement follows a pattern where China has used economic means to punish nations that have pursued policies deemed anti-Chinese by Beijing.