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Trade war

China moves to shut spigot on rare earths for first time in 5 years

US vows 'unprecedented action' to boost domestic output

Soil containing rare earth elements are transported in a port in China's Jiangsu Province. The materials are used in a wide range of products.   © Reuters

BEIJING/NEW YORK -- The Chinese government signaled Tuesday that it will take steps toward restricting rare-earth metal exports in its deepening trade war with the U.S., a step that could disrupt key supplies for high-tech industries even at the risk of isolation from the international community.

Meanwhile, the U.S. Department of Commerce promised "unprecedented action" to reduce dependence on foreign sources of "critical minerals" and recommended urgent steps, including boosting domestic production.

The moves by both sides reflect the vital importance of rare earths to the tech sector today and in the future. China knows it wields a strategic advantage as the dominant supplier, while the U.S. understands that its technological advantage hinges on continued access to the minerals.

At a meeting of China's National Development and Reform Commission on Tuesday, rare-earth experts recommended greater controls on exports of the metals, according to the state-run Xinhua News Agency. The recommendation calls for a centralized system to manage their mining and processing, and the commission said it will soon launch a policy reflecting the proposal.

China produces 70% of the world's rare earths, which are a critical component in a range of products including electric cars, smartphones and even military equipment. The U.S. relies on the country for 80% of its imports of the metals and compounds.

In May, President Xi Jinping visited a magnet maker in Ganzhou, Jiangxi Province -- the heart of China's rare-earth production -- where he called the metals an "important strategic resource."

The U.S. Department of Commerce, meanwhile, released a report on Tuesday detailing the government's strategy for securing supplies of critical minerals, such as diversifying sources domestically and enhancing trade relationships with allies including Japan, the European Union and Australia.

"These critical minerals are often overlooked but modern life without them would be impossible," Commerce Secretary Wilbur Ross said in a statement. "Through the recommendations detailed in this report, the federal government will take unprecedented action to ensure that the United States will not be cut off from these vital materials."

The U.S. is heavily reliant on mineral imports. Imports account for more than half of the nation's annual consumption of 31 of 35 critical minerals listed by the Department of the Interior, the report said. "The United States does not have any domestic production and relies completely on imports to supply its demand for 14 critical minerals," it added.

To counter this, the Commerce report made 61 recommendations -- including stockpiling, catalyzing exploration, relaxing mining regulations and increasing mining productions in the U.S. The report suggested such steps as shortening mining application time frame, assessing mineral resources in places like national parks, and facilitating offshore mining.

China used rare earths as a diplomatic tool in 2010, when it unofficially halted exports of certain elements to Japan amid tensions over Japan's Senkaku Islands, which China claims as the Diaoyu. Japan was the largest importer of Chinese rare earths at the time.

China was likely hoping to draw out concessions from Japan. But Japan, the U.S. and Europe filed a case against the Chinese quotas with the World Trade Organization, claiming they were designed to unfairly benefit Chinese industry. Beijing lost that case in 2014 and abolished quotas the following year, which has made some in China wary of imposing export restrictions on the U.S. this time around.

Experts believe the proposed export management system could lead to similar restrictions. Blocking exports could undermine China's claims that U.S. tariffs on the country violate WTO rules and isolate Beijing on the global stage.

China had identified rare earths as a key policy tool even back in the 1980s, under then-leader Deng Xiaoping. But using them to advance Beijing's interests comes with certain risks. For example, while the 2010 export ban was a significant blow to Japanese companies, China's reputation as a supplier suffered as well. The move led businesses to develop alternatives to rare earths in case a similar incident occurred.

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