The Chinese and US flags meet their counterparts for China consultations on July 30, 2019, before meeting their counterparts for China’s consultations before the US trade delegation.
Aly Song |Reuters
BEIJING – A high-priced day call between the US president and Chinese president on Thursday has yet to resolve a global shortage in rare earth exports that companies say could halt production of cars and other industrial parts this summer.
Rare earths are used in weapons, cars and other high-tech products, along with a wider group of critical minerals. China has come to control the mining and production of these metals, and has gradually begun to limit international sales over the past two years.
In early April, China announced new export controls for seven rare earth elements. Unlike other measures, Beijing did not specify whether they were a response to heightening tensions in the US.
After both sides reached a breakthrough trade agreement on May 12, China’s Commerce Ministry said on the same day they held a meeting to strengthen export controls of key minerals. There was no broad rollback of the seven rare earth restrictions.
The development was a surprise to many in Washington, as the trade agreement said that the two countries would suspend most tariffs for the 90-day period and roll back measures.
But so far, only some suppliers of US companies have received six months of export licenses for rare earths, China’s U.S. Chamber of Commerce said Friday it cited a survey of its members from May 23rd to 28th.
Of the respondents affected by rare earth control, 75% said their existing supply would disappear within three months, the survey said. Controls include research and development, resources, industry and technology, but not consumers and services companies, but primarily affected sectors, according to research.
China did not mention rare earths in reading Chinese President Xi Jinping’s call with US President Donald Trump, but the much-anticipated conversation itself shows that both countries will continue to speak following accusations from both sides of violating the trade agreement.
“I think we are in very good condition with China and the trade agreement,” Trump told reporters following the call on Thursday. “You know, we’re doing business with China, but we’ve been straightening out some of the things we mostly have to do with rare earth magnets and other things.”
He did not elaborate. But Trump said U.S. Treasury Secretary Scott Bescent, Commerce Secretary Howard Lutnick, and U.S. Trade Representative Jamieson Greer will meet his Chinese counterparts at an unspecified time.
Jianwei Xu, senior economist at Natixis, said on Friday that further trade talks could return the US and China to where they existed earlier this year. He said that in return, the US, where China is relaxing restrictions on technology exports to China, could accelerate several rare earth export approvals for commercial use.
“I think both China and the US think that their immediate weakness for each other is not about tariffs, but about the non-tariff issues, particularly in technology and rare earth,” Xu said.
It’s not just America
The impact of China’s restrictions on rare earths exceeds US companies.
According to CLEPA of the Industrial Association, several European auto parts companies have already had to stop production. Warning of wider impacts over the coming weeks, China said it has only approved about 25% of the “hundreds of export license applications” submitted.
China recently appeared to be relaxing export controls of several European companies, despite several European companies, China’s European Union Chamber of Commerce said on Friday. However, he warned that “preventing serious supply chain disruptions for many businesses is insufficient.”
“Our members are still struggling with the export license approval process due to both time and lack of transparency, which is currently having a negative impact on production lines in Europe and other countries,” said European Chamber of Commerce President Jens Eskelund in a statement.
Weekly analysis and insights from Asia’s biggest economy in your inbox
Subscribe now
Japanese automaker Suzuki Motor has temporarily suspended production of rapid automobiles due to China’s rare earth kerbs, Reuters reported Thursday, citing two unnamed sources, and manufacturing was expected to partially resume on June 13.
“China’s export control measures are consistent with universal practice. Such measures are non-discriminatory and do not target specific countries,” China’s Foreign Ministry spokesman Lin Jiang said in response to a question about Japanese automakers on Thursday, according to official English records.
It repeated last week to a spokesman for the Ministry of Commerce last week by Yongkian’s response to a question about Chinese companies restricting the sale of important minerals stored outside of the Netherlands port of Rotterdam.
She added at another press conference on Thursday that China approved an application for an export license in line with its regulations, “to promote convenient and compliant trade.” It was translated by Chinese CNBC.
Increase in export control
China’s restrictions on critical minerals have accelerated over the past few months.
Following export controls in gallium and germanium in August 2023, two metals used in chipmaking in China a year later announced similar restrictions on exports of antimony used in bullets, nuclear weapons production and lead-acid batteries. It can also strengthen other metals.
A few months later, China announced a broader policy that would tighten restrictions on exports of products that could have both civilian and military use. Export control covers metals such as tungsten, which the US deems important.
Tungsten is almost as hard as diamonds and is used in weapons, semiconductors and industrial cutting machines.
The average car has about 300 grams (10.6 ounces) of tungsten, a large part of which is lost even in recycling, says Martin Hotwagner, a market analyst at Austria-based Steel & Metal Market Research. With supplies low, he expects Western companies will likely run out of tungsten later this summer.
– CNBC’s Sam Meredith contributed to this report.
