If there is a moment of origin for the China shock that has hit the United States, it is events around rare earths in the late summer and early autumn of 2010. That August, China reduced its export quotas for the rest of the year.
The following month, it stopped selling rare earths to Japan after the Japanese Coastal Guard detained the captain of a Chinese fishing trawler that had struck one of its vessels in the waters around the territorially-disputed Senkaku Islands.
Within four days of losing access to metals on which the country’s electronics and car industries depended, Japan backed down. But China retained the embargo for another five weeks. By November, rare earth prices had soared, and they would not return to their pre-crisis level for months.
Since China accounted for more than 90% of global production in 2010, nothing could be the same again for consumers of the 17 rare-earth elements. In 2011, a US House of Representatives sub-committee held hearings on the national security implications of China’s monopoly. In 2012, the US,
Japan, and the EU launched a case against Beijing’s restrictions at the World Trade Organisation. After losing in Geneva, China agreed to dismantle the quota regime, but Beijing would no longer be trusted as a reliable long-term trading partner.
Yet, even as China’s share of global production has fallen to around 70%, its power as a rare earth exporter has loomed more seismically over the world economy for the past few months than ever before.
On 4 April, China announced new licence requirements for exporting seven specific rare earths and associated magnets to all countries in response to Trump hiking tariffs on Chinese goods to 54% earlier that week. One of these metals, samarium, is exclusively produced and processed in China, and it is essential for, among other military weapons, the Pentagon’s F-35 fighter jets.
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