China could maximize harm on the U.S. economy not just by slashing flows of rare-earth materials, but by curbing supplies of small, powerful magnets that use them.
So-called permanent rare-earth magnets are the biggest single market for the minerals, and China accounts for more than 90 percent of global production. Their widespread use in everything from vacuum cleaners to vehicles and fighter planes means multiple U.S. industries could suffer if China chooses to block their supply amid a deepening trade war between the world’s biggest economies.
A block on shipments of rare-earth metals and alloys to the U.S. is “manageable if ex-China processing gets built out swiftly,” Citigroup Inc. analysts including Oliver Nugent wrote in a report. “The impact gets much more serious were a ban to extend into rare-earth fabricated products — especially magnets and motors, or through third-party suppliers.”
China has signaled it’s gearing up to use its dominance of the global rare earths industry to hit back at U.S. measures that include the blacklisting of Huawei Technologies Co. The elements are often overlooked, but modern life would be impossible without them, Commerce Secretary Wilbur Ross said this week as the U.S. released a report that promised “unprecedented action” to ensure supply. China’s top state economic planning body is studying proposals to control exports and will put measures in place soon.
China’s magnet exports totaled $1.7bn last year, Citigroup said. While the U.S. imported about $395m, including $257m from China, that masks the potential economic hurt to downstream industries as magnets used in miniature motors perform essential functions in automobiles, wind turbines, and many home appliances.
“The industrial value add at risk if this supply chain gets disrupted is tough to quantify but likely runs multiples higher,” Citigroup said. “While Japan and others ex-China presumably have spare magnet capacity to divert more supply to the U.S., conversations with experts suggest the infrastructure and technical knowledge to respond quickly is very limited in scale.”
Add to that, many of the magnet plants outside China — the biggest are in Japan and Germany — are still reliant on China for their rare-earth inputs. Of 50,000 tons of mined supply outside China, only about 8,600 tons isn’t integrated with the Asian nation, Citigroup estimates.
Post time: Jun-25-2019