International financial markets breathe a sigh of relief as the USA and China have temporarily settled their trade dispute and agreed on a framework agreement for their trade relations. The treaty still requires approval from both Presidents Donald Trump and Xi Jinping, but for now, it seems the crisis has been averted. But is that really the case? Do Western companies now actually have free access to rare earths and other raw materials classified as critical again? And if so, for how long?
American representatives stated after the conclusion of the negotiations that the new trade agreement is based on the agreement reached in Geneva in May to ease retaliatory tariffs. This had stalled due to China’s restrictions on the export of rare earths and other critical minerals such as antimony.
For the United States, lifting Chinese restrictions on the export of rare earths was a fundamental part of the agreement. Without it, there would have been no deal. This shows, on one hand, that the Chinese side consciously uses rare earths as leverage in negotiations with the USA and knows how to utilize this advantage.
On the other hand, it also becomes clear how indispensable access to these minerals is for all those companies that want to successfully sell their products on the world market in the future. After the conclusion of the agreement, both sides declared that bilateral negotiations would continue as needed.
Lasting Understanding or just a Temporary Calm in the Trade Dispute?
This need could become acute again faster than most market participants are aware, because for one, sitting in the White House in Washington is President Donald Trump, who has repeatedly shown in the past how quickly and fundamentally he can change his mind. The North American Free Trade Agreement negotiated during his first presidency was described by him this spring as a particularly bad deal, and he immediately imposed high punitive tariffs on Canada and Mexico.
It is certainly welcome when Washington and Beijing speak directly to each other and do not just massively turn the screw of tariffs and sanctions in reaction to each other’s actions. It is also pleasing that they were able to find a compromise. However, this is by no means a matter of course.
The rivalry between the two countries is far too great for that. This is not just about a few billion more or less in world trade, but about world domination in the hardest sense. Although it is generally said that the unipolar world after the collapse of the Eastern Bloc is now being replaced by a multipolar world, economically, politically, and militarily, China and the United States currently dominate events.
The Sino-American Conflict Will Shape the Coming Decades
The other countries and state blocs are playing along, but at best second fiddle. It is therefore foreseeable that the competition between the USA and China will also be the dominating theme of world politics in the 2030s and 2040s, and any small treaty agreed between the two contenders may take a little tension out of the system, but fundamentally does not question the sharp contrast in the interests of the two countries.
All those directly and indirectly involved would therefore do well to keep in mind that in the coming months we will experience nothing more than the calm before the next storm. When this will arise and which point of contention will specifically trigger it still lies in the fog of the future today.
However, one thing is clear: there will be new disputes, and when they break out, China, with its dominance in rare earths, still has a very sharp and extremely strong leverage in its hand. Will China play this card again? This can be assumed, because the USA would also not hesitate to use this advantage for itself if it controlled 90 percent of the world’s production of a critical raw material.
There is Only one Way out of the Rare Earth Trap
China will play its trump cards as long as it has them. For rare earths and their supply, this means that the West’s access to these critical metals will always depend on the goodwill of Beijing’s leadership. If this goodwill exists, the supply should be secure. If it’s lacking, Western production could quickly come to a standstill.
This leaves only one way out of the predicament for Western countries in general and the USA in particular, which is to develop their own rare earth deposits in sufficient number and size. If this path is taken, the end result could be a situation where there are still plenty of American-Chinese conflicts, but blackmail of the West with rare earths no longer has any prospect of success.
The road there is long, as it requires not just the development of a single rare earth project. A whole number of projects are needed, because not every deposit contains all rare earths in the desired quantity, and if you’re starting with rare earths, it makes a lot of sense to continue with graphite, magnesium, and antimony, because here too, the People’s Republic controls the world market and thus holds a means of pressure that can be used again at any time if needed.
Are the Mistakes of the past Finally Being Learned from Now?
In 2011 and 2012, Western countries were already at a similar crossroads. China was arguing with Japan over uninhabited islands in the Chinese Sea and stopped supplying rare earths. At that time, there was also a feverish search for their own deposits, and the stocks of rare earth project developers experienced a massive boom on the stock market.
However, this boom collapsed powerlessly the moment China decided to defend its dominance in rare earths. Not only was Japan then resupplied with the needed rare earths, but the entire world market was virtually flooded with the metals. This caused prices to fall so sharply that none of the new projects in the West were economically viable anymore.
Western industry reacted opportunistically and bought where it was cheapest, investors got cold feet and worried about their investments, and gradually, one rare earth project after another was quietly buried. China’s ingenious plan thus succeeded. Today, more than ten years later, the massive dependence of the West has not been reduced, and Western countries look back on a lost decade.
Two Difficult Decades Lie ahead for Western States
The lost time can’t be reclaimed, and it continues to play into China’s hands for the coming ten years, because that’s how long it will take until Ucore Rare Metals (TSXV: UCU, OTCQX: UURAF, WKN: A2QJQ4) and other developers of rare earth projects have brought a sufficiently large number of their own projects online.
Ucore Rare Metals is being supported with grants from the US Army and is currently building its first commercial RapidSX™ facility for processing rare earth raw materials with the associated infrastructure in Alexandria, Louisiana. The company is thus in a quite advantageous position both in terms of time and finances. However, what’s crucial now is that this path is steadfastly continued not only by Ucore, but across the board, and that the mistakes of 2012, 2013, and 2014 are not repeated a second time.
If the mistakes of the past are repeated, China will win the struggle. However, if the West finally stands its ground and ends its massive raw material dependency on the Middle Kingdom, China’s pressure potential will decrease year by year. But until that goal is reached, we still have highly challenging and uncertain ten to twenty years ahead of us.
