Text | Shen Remarks

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On October 10th, Trump posted another message with a fierce tone.

He bluntly said that China's recent export controls on rare earth equipment and technology were a trade hostility, and also threatened that the United States was considering further substantial increases in tariffs on China and decided to cancel the originally planned talks with China during the APEC summit in South Korea.

In fact, the spark of this case is the new regulation introduced by China in the field of rare earth, only in early October, the Ministry of Commerce of China and the General Administration of Customs jointly issued new regulations on strengthening the separation technology of rare earth metallurgy, and equipment export control.

The core point of these regulations is that in the future, not only the export of rare earth raw materials will be subject to review, but also rare earth equipment and technology will begin to be included in export restrictions. This is a real move and directly affects the supply chains of many high-tech industries around the world.

After all, rare earths are usually not paid much attention to, but they can play many roles in real life, such as smartphones, wind power generation, hybrid vehicles, fighter jets, missile systems, and even electric vehicle motors. Rare earths are needed.

Although these rare earth elements sound inconspicuous, they are one of the core materials for the manufacturing industry, especially the military industry and high-tech industry.

In the past few decades, China has been the world's most important producer and exporter in the field of rare earth, occupying the vast majority of the market share, not only rich in resources, but also strong processing capacity, complete industrial chains.

Although the United States, Australia, India and other countries also have rare earth resources, this process from mining to refining to high-purity extraction cannot be completed in two or three years.

In recent years, the United States has also encouraged local mining of rare earth mines and has also signed rare earth cooperation agreements with some countries. For example, it signed a US$500 million agreement with Pakistan in September. However, these projects are far from being able to solve the immediate thirst and cannot solve the fundamental problem in the short term.

At this time, China's upgrade of rare earths control is undoubtedly a pain point for the United States, especially the inclusion of rare earths related equipment and technology into the scope of export control. This is not just "I don't sell you materials", but "I don't even let you buy it conveniently for the guy who built your own factory."

Trump's reaction this time is actually not difficult to understand. He has always taken a tough trade attitude towards China. He started fighting trade wars as early as the few years when he took office and frequently increased tax sanctions.

In terms of time, the United States has just completed talks with Pakistan about the rare earth cooperation agreement, and Pakistan has also symbolically sent two tons of rare earth samples to the United States, as a result of which China has introduced a new export restriction policy.

Although the link between these is not officially stated, but anyone can see that China's policy adjustment is obviously a response to the U.S. move, Trump may have originally thought that through the "rare-earth alliance" to circumvent China, can find a breakthrough in the supply of rare-earth, resulting in China's trick, directly disrupted their calculator.

Moreover, the United States has been suppressing China companies more and more frequently during this period. Since the end of September, the United States has successively included dozens of China companies in the export control list, including some companies involved in artificial intelligence, advanced manufacturing, and semiconductor technology.

Moreover, this time, the United States has introduced a new rule called "penetrating rule", that is to say, not only these enterprises themselves are restricted, but even their customers, partners, and even upstream and downstream enterprises may be implicated if they have business dealings with these enterprises. This method breaks through the conventional sanctions practices in the past, which is tantamount to casting a big net and enveloping thousands of Chinese enterprises.

China's escalation of rare-earth control can also be seen as a direct response to the U.S. strategy, although China has also controlled rare-earth exports, but mainly targeted on rare-earth raw materials, and there are no specific restrictions on rare-earth equipment and technology, this time the equipment and technology are also included in the scope of censorship, indicating that China does not intend to continue to let the U.S. in the field of rare-earth.

The outside world is more concerned about Trump's announcement of canceling talks with China during the APEC summit, in fact, this so-called "talk", from the beginning, the Chinese side has not explicitly confirmed to participate.

The United States is not without rare earth reserves. For example, the US military has about 500 tons of rare earth materials in reserve, but these materials are mainly used for military purposes, such as fighter jets, missiles, radar systems and so on.

According to the estimates of some US experts, such reserves would be enough for Lockheed Martin for about six months, and if there are no new additions, these high-end weapons systems will be affected.

Moreover, although the United States is investing in the construction of rare earth industrial chains, this industry is not to say that construction can be built, from mining exploration, equipment procurement, technology introduction to environmental protection treatment, this whole process is very complex and cycle is also long.

Some American experts themselves admit that even if they are fully promoted, it will be difficult to establish a reliable independent supply system of rare earths within five to ten years, so in the short term, China cannot be avoided.

In practical terms, China¡¯s controls not only hit U.S. purchasing capacity for rare earth, but also caused some other countries to re-evaluate their positions.

Like Brazil, India, and even some Southeast Asian countries, although there are rare-earth resources in their hands, but in their choice between China and the United States, they often also see which side is stronger, this time China's move is also equivalent to the alarm clock to these countries, if anyone wants to take rare-earth to "like" the United States, it must also look at whether China will allow them to buy the appropriate equipment and technology.

Judging from Trump's announcement of the cancellation of the talks, the United States' China policy is more out of a passive response. The soybean problem has not been solved yet, and the rare earth problem is coming again. Originally, Trump wanted to strive for chips through a tough stance, but now it seems that China has not followed his script. Although China doesn't make many moves, it can always find what the United States really cares about.

In fact, China does not close all exports. Instead, it takes the initiative by establishing an export licensing mechanism. It must declare and approve which countries can buy, who can use, and what their purposes are.

For the United States, the problem now is not only whether the supply of rare earth is sufficient, but the security of the entire supply chain is undermined.From high-tech manufacturing to the defense industry, when the supply of rare earth is problematic, many projects will be delayed or discontinued, which is undoubtedly a huge challenge for a country facing global competitive pressure.

Behind this incident is not simply a certain export restriction or whether a summit will be held, but a round of rivalry between China and the United States in the global industrial pattern.

Rare earths are just an entry point. The real competition is for the dominance of the entire future technology and manufacturing industry. Trump said that canceling the talks was his own decision, but the response from China is already very clear.

We are not afraid, but we are not afraid.

Whoever moves key resources will have to bear the corresponding consequences.

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