China is once again weaponizing rare earth elements in its ongoing tariff war with the United States. Recent reports indicate that China has suspended the export of certain rare earth minerals, allegedly while it re-drafts the regulations governing these exports. According to MetalMiner’s weekly newsletter, if this issue isn’t resolved soon, the halt in rare earth exports could significantly impact the production of various products across multiple sectors.
Rare earths, as many know, are essential components in a wide range of industries, from electric vehicles and defense to aviation and electronics. Currently, China produces up to 90% of the global requirement for these critical minerals. The export control list includes seven categories of medium and heavy rare earths, which consist of samarium, gadolinium, terbium, dysprosium, lutetium, scandium, and yttrium-related items. Exporters from China are now required to obtain permission from the Ministry of Commerce to ship these essential materials, placing the U.S. in a challenging position due to its heavy reliance on China for rare earth supplies.
This latest move highlights China's near-monopoly on the global rare earth supply, which, as The New York Times notes, leaves it in a stronger position during the ongoing trade war with the U.S. Two years ago, China supplied almost 99% of the world’s rare earth needs. Furthermore, China is responsible for 90% of the world’s rare earth magnets, which are crucial for manufacturing missiles, cars, and various electronic devices. Although countries like Japan and Germany contribute to the supply chain, they still depend heavily on China for raw materials.
Experts suggest that existing rare earth stockpiles might temporarily cover any immediate supply shortages. However, if the tariff war continues unresolved, this could escalate into a significant crisis. Adding to the complexity, a recent supply disruption in Myanmar has led to a 20% increase in China's rare earth exports. Just a fortnight ago, China had announced countermeasures in retaliation for U.S. tariffs, and these new export restrictions are seen as a follow-up to that action.
In light of these developments, reports indicate that the U.S. Administration may be drafting an executive order aimed at amassing deep-sea metals to ensure a domestic supply for future needs. This proposed move reflects a strategic shift to bolster the U.S. position in the face of China’s tightening grip on rare earth resources.
Historically, whenever China announces restrictive measures on rare earth supplies, it sends markets into a panic. For instance, prior to the Trump administration taking office in January 2025, China imposed existing export limits on antimony and other critical minerals, causing prices to surge by 40% in a single day. The price of antimony has since increased from approximately $14,000 per ton to as much as $60,000. Notably, 48% of the world’s mined antimony originates from China. Reports also reveal that Beijing has not shipped any antimony to the European Union since September 2024, a decision made after the EU imposed tariffs on electric vehicles from China.
As the situation continues to evolve, the implications of these trade tensions are being felt far beyond the borders of China and the U.S. The IMF had upgraded global growth forecasts to 3.3% in January 2025, but as the trade war escalates, experts like Reza Hendrickse of PPS Investments warn that we may be heading toward a slowdown in global growth, particularly impacting export-reliant economies.
In a recent discussion, Hendrickse noted that the U.S. tariffs could lead to a contraction in GDP growth, with the Atlanta Fed’s GDP model indicating a potential quarter of negative growth. This uncertainty is causing businesses to hold back on spending and investment plans, which could further exacerbate inflationary pressures. The challenge for central bankers is to navigate this complex economic landscape, balancing between slowing growth and rising inflation.
As Hendrickse pointed out, the situation is precarious. “How can one justify cutting rates when inflation is high and rising?” he asked, highlighting the difficulty central banks face in managing the economy during such turbulent times.
Looking ahead, the U.S. Treasury yields have also been fluctuating, recently spiking back above 4%. This volatility has prompted some investors to shy away from U.S. assets, reflecting growing concerns about the economic warfare between the U.S. and China. Hendrickse mentioned that while they had maintained an overweight position in global bonds, they have recently trimmed their exposure due to these uncertainties.
In South Africa, the inflation rate remains at the lower end of the target range, around 3%, which provides some room for the South African Reserve Bank (Sarb) to consider rate cuts. Hendrickse expressed cautious optimism about modest GDP growth in South Africa, although he acknowledged that the country remains structurally a low-growth economy.
As the Sarb prepares for its upcoming meeting at the end of May 2025, there are expectations for potential rate cuts if inflation remains stable. However, global risks and dynamics will undoubtedly play a significant role in the Sarb's decision-making process.
In summary, the intersection of global trade tensions, particularly between the U.S. and China, and the resulting economic implications are creating a complex environment for policymakers and investors alike. The outcome of these developments will have far-reaching effects on various sectors, from technology to manufacturing, and could reshape the global economic landscape in the months to come.
