Early in the morning of October 13, when the news spread, Washington's winner's face was darker than the night. Trump was still celebrating the "breakthrough of Chinese control", and China broke the new rules on the rare earth chain.

China to include all rare earth chains in export controls

The incident burst out from the late-night announcement of the Chinese Ministry of Commerce. Rare earth mining, smelting and separation, magnet preparationIncluded in the export control list and also included Terbium, dysprosium, lutetium, yttriumThe key is in the phrase "if any foreign rare-earth products contain Chinese technology, equipment or raw materials, their export must be approved by the Chinese side." This is known in the industry as the "technology tracking clause", which extends the management of China's rare-earth industry "from the mine to the terminal." Trump's team originally believed that Pakistan could cope the road, now is blocked in the port shore, dozens of tons of rare-earth concentrate hanging on the ship.

Pakistan plays the role of ¡°supply underneath¡±

Two months ago, the Pakistani prime minister and chief of military staff marched to Washington with a team.The Memorandum of Understanding on Rare-Earth Development, signed in early September, was viewed by the White House as a ¡°temporary remedy¡± for Chinese control.

Pakistan promised to use Gwadar Port to quickly assemble rare earth raw ore and arrange dual-channel transportation to American ports. Trump boasted on social media: "That's the resource freedom Americans need."The U.S. Department of Commerce immediately announced that it would grant Pakistan US$500 million in investment and some tariff exemptions. Pakistan did not hide its excitement, saying that "this cooperation can stimulate domestic GDP growth by 0.6 percentage points." For Trump, the deal is not only a supply of rare earths, but also a campaign chip.

[The reality of Gwadar Port is a pile of China parts]

The problem quickly became apparent. The rare earth beneficiation line at Gwadar Port is a supporting product of the China-Pakistan Economic Corridor mining project in 2018. For mineral processing extractantFrom Inner Mongolia, the automatic control system of the separate workshop is contracted by Chengdu enterprises, and the key filter even comes from Jiangsu. Pakistan lacks rare-earth purification infrastructure, and U.S. experts have assessed that even if the concentrate is obtained, it can be shipped to Japan or China for processing. Now the new regulation emphasizes "containing Chinese technology or equipment must be approved", Pakistan's export chain is equivalent to the card in the "legal procedure".

China replicates the logic of ¡°long arm jurisdiction¡±

This is not a simple confrontation, but a return to the U.S. well-known rule weapons. The U.S. has blocked Huawei with "foreign direct product rules" and demanded that any chip worldwide using U.S. technology be approved to sell. Now, China has done almost the same operation in the field of rare earth. The difference is that rare earth is the fate of the U.S. military. Every F-35 needs. 417 kg of rare earth metalsMissile control, radar, and tactical communication are also inseparable. The permanent magnet.¡£ The U.S. Geological Survey (USGS) has repeatedly warned that "without China's deep processing, there will be no solution to the shortcomings of rare earth supply in the United States." This time, China's counter-measure can be regarded as a boomerang for Washington to taste the "risk of technology dependence".

[Trump Team's Joy Flashes]

Trump originally wanted to use Pakistani rare earth as a campaign advertisement. On October 10, he declared in Arizona: ¡°We have found a free rare earth supply chain, and the United States no longer needs to look at the Chinese face.¡± LynasThe Canadian Project Vital Metals, want to rely on "diversified procurement" to block the pressure of public opinion first. Second, the Ministry of Defense has included rare earth extraction in its strategic budget and announced that it will add $1.2 billionSupport domestic smelting facilities. Third, Vice President J.D. Vance told the media: "We are still willing to try to communicate rationally with China." On the surface, he is tough, but in fact he recognizes the lethality of the new regulations.

[The advantages of China's rare earth chain have not been shaken at all]

In terms of supply, China controls the global deal. 92% of rare earth refining capacity¡¢ More than 70% heavy rare earth purification technologyMoreover, the global 90% rare earth extractantProduced in China.The U.S. Mountain Pass mines can be mined, but after purification it needs to be shipped back to China to complete high-end processing. Linnaeus of AustraliaIn other words, as long as China adheres to the standards ¨C ¡°China technology is subject to approval¡± ¨C the global rare earth chain cannot bypass Beijing¡¯s threshold.

[Pakistan's Real Dilemma]

The Pakistani government once used rare earth as a diplomatic code. The military¡¯s assessment believes that rare earth projects can bring new foreign exchange sources and also warm up relations with the United States. The investment plan can be written even more beautifully, the reality is that Pakistan¡¯s energy tensions, electricity instability, limited traffic capacity, the subsequent support of rare earth projects is inseparable from Chinese enterprises. The roads, transmission lines and desalination water systems around Guadal Harbour areined by Chinese companies. Trump¡¯s plans hit the hard wall here ¨C as long as Pakistan continues to enjoy the dividends of China¡¯s infrastructure, it will be difficult to completely ¡°de-Chinaise¡±.

[Global markets were instantly impacted]

After the news was released, the London Metal Exchange's rare earth-related index jumped 7% in after-hours trading, and the military sector of U.S. technology stocks pulled back in response. Wall Street analysts suggest that the most affected in the short term is RTX and Lockheed Martin, they are responsible for a large number of orders requiring rare earth magnets. Automakers in Japan and South Korea are also worried about supply fluctuations. According to Tokyo Industry News, Japan's Ministry of Economy, Trade and Industry keeps in touch with China's Ministry of Commerce to ensure that rare earth magnets for vehicle motors can be smoothly approved. South Korea's LG and Samsung are also evaluating inventories to avoid a supply gap like in 2020. It can be seen that a "technical clause" from China allowed many countries to take stock of inventory overnight.

[This observer's judgment]

The senior financial commentator observed that this rare-earth game has long gone beyond the scope of ¡°trade retaliation¡±.China¡¯s strategy is not to make the United States completely confess, but to make Washington conscious at all times: Technology chain dominance in China's handsAs long as the United States continues to use rare earth as a "geographic weapon", China will strengthen multiple tools such as export licenses, technical authorizations, investment access, and adjust the card position at any time.

Even if the United States spends money on Australia, Brazil, Mongolia and other countries, it will be difficult to replicate the craft experience accumulated by China over the past decades in the short term. Rare earth purification is not a simple equipment pile. It is a systematic project that requires the coordination of engineer teams, environmental management, supporting chemicals, and downstream manufacturing. Rather than fantasizing about a "no Chinese-free solution", the United States should first figure out "why it cannot do without China."

Potential trends: negotiation, add-ons and upgrades

In the coming weeks, there may be three dynamics.In the first place, the US-China consultation window will be reopened.If Trump wants to stabilize the manufacturing ballot, he will have to explore the "green channel" with China for rare-earth approval.In the second place, the US will strengthen the "friend chain" layout.The White House or increase investment in rare-earth projects in India, Vietnam and Africa to try to decentralize the risk in the long run.In the third place, the risk of technological warfare rises.The U.S. may tighten in other fields, such as restricting China's access to cutting-edge optical engines or AI chips, and want to "strike each other" in exchange for negotiation codes.

[Historical backtrack: it's not the first time that the rare earth card has been played]

In 2010, China suppressed its rare-earth exports to Japan as a result of the Fiji Island collision, and Tokyo sounded a ¡°supply security¡± warning. The United States has also accelerated its strategic rare-earth reserves since then. In 2019, Washington considered classifying China as a ¡°rare-earth-dependent risk country¡±, with a subsequent diversified layout. But over the past decade, the world has still bought rare-earth in China. A long-term tracking industry analyst concluded: ¡°Each crisis makes the world more familiar with the irreplaceability of China¡¯s rare-earth chain.¡±

[Chain effect at the economic level]

For China, the new regulations not only strengthen the safety of rare earths, but also force industrial upgrading. Export licenses drive low-end transactions, but higher value-added rare earth permanent magnets, special alloys, and special ceramics represent China's global technological advantages. If U.S. companies want to obtain licenses, they will inevitably increase exchange and cooperation opportunities with Chinese companies. For U.S. companies, they can only rely on inventories and other allies to withstand demand in the short term. In the long run, huge amounts of money will be invested to build refineries that meet environmental standards and mature technologies. The price of this path is high operating costs and uncertain political cycles. The capital market is already assessing risks. Behind the fluctuations in rare earth concept stocks is the psychological battle between the two sides of "who cannot withstand it first".

[Emotional fluctuations at the political level]

Trump's tough label prevented him from showing weakness at will, but this time he had to adjust his wording. Vance's sentence on the TV program,"We will also remain rational", was actually sending a conciliatory signal to the corporate world. Hawks in the U.S. Congress may use this to attack: "This is China's manipulation of strategic resources, and the United States must fight back." But when resources are in the hands of others, no matter how many slogans are shouted, it will help.

China's choice to take action when the United States just announced a breakthrough is not only a strategic consideration, but also a way of managing emotions, allowing the US side to experience the frustration of "white pleasure" and helps to stabilize the initiative for subsequent negotiations.

[This is not the end]

People in the industry understand that rare earths are only a point on the chessboard of science and technology. As the competition for new energy, semiconductors, and AI computing power intensifies, whoever can master the supply chain of key materials and core technologies will have a greater say. China uses this trick to tell its opponents that it can not only defend, but also fight back, and know how to use the rules that its opponents are familiar with. If the United States does not reassess its competitive position with China in the field of science and technology and continues to use the Cold War mentality to set reality, it will only fall into a passive position time and time again.

The earthquake effect of the supply chain has just reached the end of the industry. The dispute around the high-tech resources will only be more frequent and more complex. Trump will next step to suppress the fire or increase the pressure? Pakistan will continue to stand up to the United States or re-balance? China will not upgrade the control list again? welcome you to say judgment in the comment zone.

References:

• Ministry of Commerce of China: Catalog of Technologies Prohibited and Restricted on Exports and Related Interpretations (Revised Edition in 2023)
• Mineral Commodity Summaries 2024 ¨C Rare Earths
• World Trade Organization: Export Restrictions and the Global Trade System
• Lynas Rare Earths Ltd. financial statements and project disclosures for 2024
• China Steel Research and Technology Group: The Rare-Earth Permanent Magnetic Materials Industry Chain Development Report (2024)