Beijing could slam every corner of the American economy, from oil refineries to wind turbines to jet engines, by banning exports of crucial minerals.
With a simple visit to an obscure factory on Monday, Chinese President Xi Jinping has raised the specter that China could potentially cut off supplies of critical materials needed by huge swaths of the U.S. economy, underscoring growing concerns that large-scale economic integration is boomeranging and becoming a geopolitical weapon.
With the U.S.-China trade war intensifying, Chinese state media last week began floating the idea of banning exports of rare-earth elements to the United States, one of several possible Chinese responses to U.S. President Donald Trump’s decision to jack up tariffs on hundreds of billions of dollars’ worth of Chinese goods and blacklist telecoms maker Huawei.
U.S. oil refiners rely on rare-earth imports as catalysts to turn crude oil into gasoline and jet fuel. Permanent magnets, which use four different rare-earth elements to differing degrees, pop up in everything including ear buds, wind turbines, and electric cars. And China dominates their production.
“It would affect everything—autos, renewable energy, defense, and technology,” said Ryan Castilloux, the founding director of Adamas Intelligence, a strategic metals consultancy. China supplies about 80 percent of the rare-earth elements imported by the United States, which are used in oil refining, batteries, consumer electronics, defense, and more.
Those concerns became a lot more tangible this week when Xi, accompanied by his point man for U.S. trade talks, visited a facility in the heart of China’s rare-earths industrial complex. Xi called for a new “Long March,” a reference to one of the founding epics of the Chinese Communist Party, in its economic war with the United States. “There is always some degree of misinterpretation, but with the timing [of Xi’s visit] it’s our view that the optics suggest what they suggest, and that it is indeed” a veiled threat, Castilloux said.
This wouldn’t be the first time China has used its dominant position in rare earths as geopolitical leverage. In 2010, China sharply limited rare-earth exports to Japan, a big consumer, while the two countries were sparring over disputed islands. The embargo won China some short-term victories but also drove other countries to reassess and reduce their reliance on critical materials that Beijing controls.
“One takeaway from the Japan embargo is that China’s reputation as a stable producer suffered,” said Sagatom Saha, an independent energy policy analyst who’s studied the issue. “I’d be surprised if there were an outright embargo. It would be a drastic measure that would permanently raise alarm bells in global national security circles to achieve a small goal to which it could apply other tools, or even possibly wait out, given Trump’s fickleness.”
But if China does reach for what Castilloux calls the “nuclear option,” it would hammer big chunks of the U.S. economy, though the exact magnitude of such a move is difficult to estimate. The mere threat of China turning off the tap of critical industrial materials highlights a vulnerability that is increasingly worrying analysts and policymakers in Washington, Beijing, and other capitals. Globalized supply chains offer flexibility and lower costs for consumers of a wide range of products. At the same time, the central position of the U.S. dollar and U.S. financial system has streamlined trade and fueled growth. But at times of geopolitical tension, those same efficiencies can suddenly become deadly vulnerabilities—for all countries.
In the last 20 years, the United States has used its dominance of the global financial system to punish its adversaries by blocking them from carrying out transactions with U.S. banks, even if that means browbeating allies in the process. Now, with the prohibition of U.S. firms doing business with Huawei and other Chinese firms, Washington is testing whether it can use critical American technology used by companies the world over in a similar fashion.
Henry Farrell, a political scientist at George Washington University, calls this “weaponized interdependence.” Globalization has created global economic networks of engineering centers, manufacturers, and suppliers, and countries are now examining these networks to find their weak points and exploit them for geostrategic gain.
Washington’s move against Huawei marks “the opening of a new and much more dramatic stage” in using these tools as part of a conflict that has been brewing between China and the United States for decades, Farrell said.
With the U.S.-China trade war intensifying, Chinese state media last week began floating the idea of banning exports of rare-earth elements to the United States, one of several possible Chinese responses to U.S. President Donald Trump’s decision to jack up tariffs on hundreds of billions of dollars’ worth of Chinese goods and blacklist telecoms maker Huawei.
“It would affect everything—autos, renewable energy, defense, and technology,” said Ryan Castilloux, the founding director of Adamas Intelligence, a strategic metals consultancy. China supplies about 80 percent of the rare-earth elements imported by the United States, which are used in oil refining, batteries, consumer electronics, defense, and more.
Those concerns became a lot more tangible this week when Xi, accompanied by his point man for U.S. trade talks, visited a facility in the heart of China’s rare-earths industrial complex. Xi called for a new “Long March,” a reference to one of the founding epics of the Chinese Communist Party, in its economic war with the United States. “There is always some degree of misinterpretation, but with the timing [of Xi’s visit] it’s our view that the optics suggest what they suggest, and that it is indeed” a veiled threat, Castilloux said.
This wouldn’t be the first time China has used its dominant position in rare earths as geopolitical leverage. In 2010, China sharply limited rare-earth exports to Japan, a big consumer, while the two countries were sparring over disputed islands. The embargo won China some short-term victories but also drove other countries to reassess and reduce their reliance on critical materials that Beijing controls.
“One takeaway from the Japan embargo is that China’s reputation as a stable producer suffered,” said Sagatom Saha, an independent energy policy analyst who’s studied the issue. “I’d be surprised if there were an outright embargo. It would be a drastic measure that would permanently raise alarm bells in global national security circles to achieve a small goal to which it could apply other tools, or even possibly wait out, given Trump’s fickleness.”
But if China does reach for what Castilloux calls the “nuclear option,” it would hammer big chunks of the U.S. economy, though the exact magnitude of such a move is difficult to estimate. The mere threat of China turning off the tap of critical industrial materials highlights a vulnerability that is increasingly worrying analysts and policymakers in Washington, Beijing, and other capitals. Globalized supply chains offer flexibility and lower costs for consumers of a wide range of products. At the same time, the central position of the U.S. dollar and U.S. financial system has streamlined trade and fueled growth. But at times of geopolitical tension, those same efficiencies can suddenly become deadly vulnerabilities—for all countries.
In the last 20 years, the United States has used its dominance of the global financial system to punish its adversaries by blocking them from carrying out transactions with U.S. banks, even if that means browbeating allies in the process. Now, with the prohibition of U.S. firms doing business with Huawei and other Chinese firms, Washington is testing whether it can use critical American technology used by companies the world over in a similar fashion.
Henry Farrell, a political scientist at George Washington University, calls this “weaponized interdependence.” Globalization has created global economic networks of engineering centers, manufacturers, and suppliers, and countries are now examining these networks to find their weak points and exploit them for geostrategic gain.
Washington’s move against Huawei marks “the opening of a new and much more dramatic stage” in using these tools as part of a conflict that has been brewing between China and the United States for decades, Farrell said.