Without rare earth elements, supply chains would instantly shut down.
Rare earth elements are an essential part of most supply chains in the form of raw materials, component parts, or finished goods such as wiring, circuit boards, magnets, electronic consumer goods, clean energy, automotive, and defense equipment. Without rare earth elements, supply chains would instantly shut down.
Rare earth elements are called “rare” because it is hard to find a significant volume in one place, even though they are found in many places on earth. While these elements are mined and produced in Europe and the U.S., the amounts are miniscule compared with production in China. China has the biggest deposits of rare earths and from these deposits, produces over 90% of the world’s supply at cheap prices for use in manufactured products. The price of rare earths from China is significantly cheaper than other worldwide production – about 75%-80% less.
Are rare earth elements used in products your company produces and products you use? Definitely.
A few years ago, China imposed restrictions on the export of rare earths. By restricting these exports, China was trying to gradually force all manufacturing using China rare earths, to occur within China. Several countries, including the U.S., took this case against China’s export restrictions to the WTO, and won in 2014, opening up the trade in rare earths for a few years. But now, it seems new Chinese restrictions and export quotas are aimed at the U.S., in retaliation for the 301 US penalty tariffs.
On the U.S. import side so far, rare earth elements are among the very few items excluded from the U.S 301 China penalty tariffs, highlighting their strategic importance. China does not import enough goods from the US to retaliate in pure tariff terms, so non-tariff retaliation such as restrictions on rare earths become strategically important.
Another source of rare earths is electronic waste. Rare earths recycled from electronic parts is a growing business and a potential source of rare-earth materials for U.S. manufacturers. Recycling plants are being built and operated in Europe, Asia and North America and should be considered as part of your sourcing strategy.
If your company isn’t already developing alternate sources of rare earths outside of China, you should start now. Identifying what suppliers and supply chain partners use rare earths and planning a strategy with them is also a good idea. If you use a contract manufacturer, do you know their supply chains?
Xi Jinping’s Symbolic Tour
Xi Jinping visited one of China’s major rare earths mining and processing facilities in Ganzhou recently in a symbolic threat of global control over rare earths supplies. Reports of the visit referenced Mao’s famous “Long March” across China which was a feat of endurance and perseverance. The symbolism wasn’t lost on China watchers. Xi seems intent on settling in for the long-term and out waiting the U.S.in this trade war. He may be using the Long March reference to engage the Chinese people in planning for enduring long hardships.
The Chinese have endured such periods many times in the past. Restricting rare earths exports may be signaling that the trade war will continue for a long time.
Does your company have a long-term strategy for rare earths?