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© Pixabay General | June 03, 2019

Experts weigh in on China’s possible restriction of rare earths to U.S.

Following China’s hint that they may be considering cutting production and choking off export of rare earth minerals to the U.S., economists and other financial experts are analyzing potential impacts to the U.S.

Rare earths include a group of 17 minerals that aren’t actually rare, but not abundantly mined like metals such as copper and aluminum. But they have become increasingly important in recent years due to their use in manufacturing of high-tech equipment, defense equipment, and electric vehicles. According to a CNBC report, Bridgewater Associates’ Ray Dalio, co-founder of the largest hedge fund in the world, wrote in a blog post last week that if enacted, China’s restrictions would constitute a “major escalation” of the protracted trade war between the globe’s two largest economies. “Refined rare metals are a critical import that American companies don’t produce and need to get from China to produce many needed products in the U.S. such as mobile phones, magnets, night vision glasses, gyroscopes in jets, LED lights, glass, and ceramics,” Dalio wrote. Dalio’s made the remarks following a Chinese official’s warning that products made from such materials should not be used against China’s development, a statement many on Wall Street viewed as a veiled threat. The comment from the official, first reported by Chinese broadcaster CCTV, followed President Xi Jinping’s well-telegraphed visit last week to rare earth mining and process facilities in the southern province of Jiangxi. Other financial and market experts feel differently. On Monday, in a research note published by Raymond James analysts Ed Mills and Pavel Molchanov and reported on by CNBC, the analysts said, “As a general premise, we are of the view that the impact on the U.S. would be mild, which is one reason why we are skeptical that Beijing would ‘pull the trigger’ on this particular threat,” The analysts added that the rationale is fairly clear: “The U.S. has only limited manufacturing capacity vis-a-vis the high-tech products that are most commonly associated with rare earths. Consumer electronics (PCs, smartphones, flat panel TVs) and various industrial goods (electric vehicle batteries, wind turbines, lasers, fiber optics) are simply not produced in the U.S. on the scale that they are in China itself and/or its Asian neighbors.” John LaForge, head of real asset strategy at Wells Fargo Investment Institute said in a research note last week the ban would put U.S. manufacturers that use rare earths in a bind by increasing production costs and even causing product delays. But Forge also said he believed the ban doesn’t automatically translate as a trump card for Beijing, because about the most China could do is restrict rare earth metals supplies to U.S. manufacturers, according to the CNBC report. “We have a hard time seeing how China could slap rare earth restrictions on consumer goods — goods that are produced inside China and are increasingly consumed globally — and not shoot itself in the economic foot in the process,” said LaForge.
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December 12 2019 10:59 am V14.8.5-1