USA-China Tariff Showdown Exposes Rare Earth Element Supply Risk: American Industrials and Defense Sector Have No Alternatives

Diplomatic Channels Are Closing. What Are The Alternatives In a ‘Zero Sum’ Game?  

industrial uses for rare earth elements
Source: US Department of Energy National Energy Technology Laboratory

American industrial companies and defense contractors face troubling questions in relation to the USA-China showdown. The chart above depicts industrial consumption or application of rare earth elements.  The left side portrays applications on a worldwide basis.  The right side sets forth rare earth element consumption within the USA.  In the near-term,  sectors at risk include magnets, metal alloys, catalysts, polishing, ceramics, phosphors and glass. China is the de facto supplier to the world with roughly 90% of global rare earth element production.  The current political crisis has amplified the structural supply chain risk for critical rare earth elements.

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The September 6, 2018 Time Magazine story identifies the risk in a vivid way: China Threatens Retaliation if President Trump’s New $200 Billion Tariffs Go Ahead.  USA industrials and defense contractors who utilize rare earth elements face immediate immediate risk of price increases and supply interruptions.  To a lesser degree, the entire global industrial sector is likely to suffer as the USA-China dispute continues.  

In the intermediate-to-longer term, the tactical implications will exasperate the situation and likely permit China to strengthen its global dominance.  The situation is portrayed vividly in our September 7, 2016 story entitled China Report – US Rare Earth Tariffs Will Spur China To Fast Track High Technology: Analysts. We make this point because China continues to make progress with R&D, innovation and vertical integration.  All signs point to a victory for China with America losing out…on many fronts.  The problem with this scenario is that the entire global industrial system will end up a loser.  The zero sum game is actually a Catch-22.  The political leaders of China, management in China SOEs and others in the country realize that the rare earth element industry requires competitive symmetry for survival.  In discussions between the Editor and parties in China, the ideal rare earth element matrix would have China producing 50% of the world supply with the balance originating in the USA, Australia, Africa, South America, the Middle East and other parts of Asia.   Given the strong global economy, let’s hope that a diplomatic accord develops.  

Click Here To See China Report – US Rare Earth Tariffs Will Spur China To Fast Track High Technology: Analysts.


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